Question

On January 1, NewTune Company exchanges 18,688 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 $35,250 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:

	Book Values				Fair Values
Receivables	$	51,750			$	49,150
Trademarks		96,000				267,750
Record music catalog		84,500				240,500
In-process research and development		0				265,500
Notes payable		(72,000	)			(63,750	)

Precombination book values for the two companies are as follows:

	NewTune				On-the-Go
Cash	$	70,000			$	41,000
Receivables		140,000				51,750
Trademarks		418,000				96,000
Record music catalog		931,000				84,500
Equipment (net)		333,000				138,000
Totals	$	1,892,000			$	411,250
Accounts payable	$	(113,000	)		$	(38,250	)
Notes payable		(467,000	)			(72,000	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(882,000	)			(221,000	)
Totals	$	(1,892,000	)		$	(96,000	)

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 postcombination 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

THE CONTRIBUTION ENTRIES WILL BE AS FOLLOWS:

a)

Fair value of consideration transferred (shares issue)	934400
Fair value of net assets acquired:
Cash	41000
Receivables	49150
Trademarks	267750
Record music catalog	240500
In process research and development	265500
Equipment	138000
Accounts payable	(38250)
Notes payable	(63750)	899900
Goodwill		$34500

Journal entries will be as follow:

Cash	41000
Receivables	49150
Trademarks	267750
Record music catalog	240500
Research and development asset	265500
Equipment	138000
Goodwill	34500
Accounts payable		38250
Notes payable		63750
Common stock( par value)		74752
Additional paid in capital		859648
( to record merger with on the go to fair value)
Additional paid in capital	35250
Cash		35250
(stock issue cost incurred)

b)

The consolidated worksheet will be as follows:

			Consolidated	entries	Consolidated totals
	New tune .inc	On the go co.	Debit	Credit
Cash	75250	41000			75750
Receivables	140000	51750		2600	189150
Trademarks	418000	96000	171750
Record music catalog	931000	84500	156000
Equipment	333000	138000
Research & development asset	-	-	265500
Goodwill	-	-	34500
Investment in on the go	934400	-
Totals	2831650	411250
Accounts payable	113000	38250			151250
Notes payable	467000	72000	8250		530750
Common stock	474752	50000	50000		474752
Additional paid in capital	894898	30000	30000		894898
Retained earnings	882000	221000	221000		882000
Totals	2831650	411250