Question

On January 1, NewTune Company exchanges 17,360 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 $44,650 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 (credit balances in parentheses):

On January 1, NewTune Company exchanges 17,360 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 $44,650 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 (credit balances in parentheses): Book Values Fair Values Receivables $ 44,250 $ 41,300 Trademarks 117,250 277,750 Record music catalog 66,000 186,750 In-process research and development 0 261,000 Notes payable (54,750) (48,350) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 62,000 $ 50,250 Receivables 125,000 44,250 Trademarks 441,000 117,250 Record music catalog 873,000 66,000 Equipment (net) 344,000 108,000 Total Assets $ 1,845,000 $ 385,750 Accounts payable $ (150,000) $ (43,500) Notes payable (378,000) (54,750) Common stock (400,000) (50,000) Additional paid-in capital (30,000) (30,000) Retained earnings (887,000) (207,500) Total liabilities and equities $ (1,845,000) $ (385,750) 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 post combination 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

Precombination book values for the two companies are as follows:

	NewTune			On-the-Go
Cash	$	62,000		$	50,250
Receivables		125,000			44,250
Trademarks		441,000			117,250
Record music catalog		873,000			66,000
Equipment (net)		344,000			108,000
Total Assets	$	1,845,000		$	385,750
Accounts payable	$	(150,000)		$	(43,500)
Notes payable		(378,000)			(54,750)
Common stock		(400,000)			(50,000)
Additional paid-in capital		(30,000)			(30,000)
Retained earnings		(887,000)			(207,500)
Total liabilities and equities	$	(1,845,000)		$	(385,750)

1. 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 potcombination balance sheet for NewTune as of the acquisition date.
2. 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.

Answer 1

a.)			Amount $
	Fair value of consideration transferred (Share issued)		868,000
	(17,360 x 50 )
	Less :Fair Value of net Assets acquired:
	Cash	50,250
	Receivables	41,300
	Trademarks	277,750
	Record music catalog	186,750
	In-process research & development	261,000
	Equipment	108,000
	Accounts Payable	-43,500
	Notes Payable	-48,350	833,200
	Goodwill		34,800

	Post Combination Balance Sheet
	Assets	Amount in $	Liabilities & Stockholder's equity	Amount in $
	Cash ( 62000+50250-44650)	67,600	Accounts Payable (150000+43500)	193,500
	Receivables (125000+41300)	166,300	Notes Payable (378000+48350)	426,350
	Trademarks (441000+277750)	718,750	Common Stock (400000+(17360*4) )	469,440
	Record music catalog (873000+186750)	1,059,750	Additional paid in capital (30000+(17360*46)-44650 )	783,910
	In- process Research & development asset	261,000	Retained Earnings	887,000
	Equipment (net ) (344000+108000)	452,000
	Goodwill	34,800
	Total Assets	2,760,200	Total Liabilities & Equities	2,760,200
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b.)	Consolidation worksheet as on January 1
				Consolidation Entries
	Accounts	Newtune co.	On-the-Go, Inc.	Debit	Credit	Consolidated Totals
	Cash ( 62,000 - 44,650 )*	*17,350	50,250			67,600
	Receivables	125,000	44,250		2,950	166,300
	Investment in On-the-Go. ( 17,360 x 50 )	868,000	-		868,000	-
	Trademarks	441,000	117,250	160,500		718,750
	Record music catalog	873,000	66,000	120,750		1,059,750
	In- process Research & development asset	-	-	261,000		261,000
	Equipment (net )	344,000	108,000			452,000
	Goodwill	-	-	34,800		34,800
	Total Assets	2,668,350	385,750			2,760,200
	Accounts Payable	150,000	43,500			193,500
	Notes Payable	378,000	54,750	6,400		426,350
	Common Stock	469,440	50,000	50,000		469,440
	Additional paid in capital	783,910	30,000	30,000		783,910
	Retained Earnings	887,000	207,500	207,500		887,000
	Total Liabilities & Equities	2,668,350	385,750	870,950	870,950	2,760,200
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