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:

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	)

Precombination book values for the two companies are as follows:

NewTune				On-the-Go
Cash	$	71,250			$	39,250
Receivables		79,750				47,250
Trademarks		460,000				114,500
Record music catalog		858,000				84,250
Equipment (net)		379,000				127,000
Totals	$	1,848,000			$	412,250
Accounts payable	$	(184,000	)		$	(34,500	)
Notes payable		(372,000	)			(70,250	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(862,000	)			(227,500	)
Totals	$	(1,848,000	)		$	(114,500	)
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. NEWTUNE COMPANY AND ON-THE-GO, INC. Post-Combination Balance Sheet January 1, 2018 Assets Liabilities and Stockholders' Equity Cash Accounts payable Receivables Notes payable Trademarks Common stock Record music catalog Additional paid-in capital Research and development asset Retained earnings Equipment Goodwill Total assets Total liabilities and equities

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.

NEWTUNE COMPANY AND ON-THE-GO, INC.
Consolidation Worksheet
January 1, 2018
			Consolidation Entries
Accounts	Newtune Co	On-the-Go, Inc.	Debit	Credit	Consolidated Totals
Cash	not attempted	not attempted	not attempted	not attempted	not attempted
Receivables	not attempted	not attempted	not attempted	not attempted	not attempted
Investment in On-the-Go	not attempted	not attempted	not attempted	not attempted	not attempted
Trademarks	not attempted	not attempted	not attempted	not attempted	not attempted
Record music catalog	not attempted	not attempted	not attempted	not attempted	not attempted
Research and development asset	not attempted	not attempted	not attempted	not attempted	not attempted
Equipment	not attempted	not attempted	not attempted	not attempted	not attempted
Goodwill	not attempted	not attempted	not attempted	not attempted	not attempted
Total assets	$0	$0			$0
Accounts payable	not attempted	not attempted	not attempted	not attempted	not attempted
Notes payable	not attempted	not attempted	not attempted	not attempted	not attempted
Common stock	not attempted	not attempted	not attempted	not attempted	not attempted
Additional paid-in capital	not attempted	not attempted	not attempted	not attempted	not attempted
Retained earnings	not attempted	not attempted	not attempted	not attempted	not attempted
Total liabilities and equities	$0	$0	$0	$0	$0

Answer 1

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.

Fair value of consideration transferred (shares issued) 18,668*50		933,400
Fair value of net assets acquired:
Cash	39,250
Receivables	44,850
Trademarks	302,750
Record music catalog	251,500
In-process R&D	235,500
Equipment	127,000
Accounts Payable	(34,500)
Notes Payable	(64,950)	901,400
Goodwill		32,000
Entry by NewTune to record combination with On-the-Go:
Cash	39,250
Receivables	44,850
Trademarks	302,750
Record music catalog	251,500
Capitalized R&D	235,500
Equipment	127,000
Goodwill	32,000
Accounts Payable		34,500
Notes Payable		64,950
Common Stock (NewTune par value)		74,672
Additional Paid in Capital		858,728
(To record merger with On-the-Go at fair value)
Additional Paid in Capital	33,550
Cash		33,550
(Stock issue costs incurred)

NEWTUNE COMPANY AND ON-THE-GO, INC Post-Combination Balance Sheet: January 1, 2018
Assets	Amount	Liabilities and Stockholders' Equity	Amount
Cash	76,950	Accounts Payable	218,500
Receivables	124,600	Notes Payable	436,950
Trademarks	762,750	Common Stock (NewTune par value)	474,672
Record music catalog	1,109,500	Additional Paid in Capital	855,178
Capitalized R&D	235,500	Retained Earnings	862,000
Equipment	506,000
Goodwill	32,000
	2,847,300		2,847,300

NEWTUNE COMPANY AND ON-THE-GO, INC. Consolidation Worksheet January 1, 2018
Accounts	Newtune Co	On-the-Go, Inc.	Debit	Credit	Consolidated Totals
Cash	37,700	39250			76,950
Receivables	79,750	47,250		-2,400	124,600
Investment in On-The-Go	933,400	0
Trademarks	460000	114,500	188,250		762,750
Record music catalog	858000	84,250	167,250		1,109,500
Capitalized R&D	0	0	235,500		235,500
Equipment	379,000	127,000			506,000
Goodwill	0	0	32,000		32,000
Total Assets	2,747,850	412,250			2,847,300
Accounts Payable	184,000	34,500			218,500
Notes Payable	372,000	70,250	5,300		436,950
Common Stock (NewTune par value)	474,672	50,000	50,000		474,672
Additional Paid in Capital	855,178	30,000	30,000		855,178
Retained Earnings	862,000	227,500	227,500		862,000
Total Liabilities and equities	2,747,850	412,250			2,847,300