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	)		$	(411,250	)

1. 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

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