On January 1, NewTune Company exchanges 18,668 shares of its common stock for al
ID: 2607597 • Letter: O
Question
On January 1, NewTune Company exchanges 18,668 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in the acquisition was considered equal to On-the-Go’s fair value. NewTune also paid $33,550 in stock registration and issuance costs in connection with the merger.
Several of On-the-Go’s accounts’ fair values differ from their book values on this date:
Precombination book values for the two companies are as follows:
a. Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date.
Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date.
Book Values Fair Values Receivables $ 47,250 $ 44,850 Trademarks 114,500 302,750 Record music catalog 84,250 251,500 In-process research and development 0 235,500 Notes payable (70,250 ) (64,950 )Explanation / Answer
a
In accounting for the combination of NewTune and On-the-Go, the fair value of the acquisition is allocated to each identifiable asset and liability acquired with any remaining excess attributed to goodwill.