Question

On January 1, NewTune Company exchanges 17,098 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 $26,700 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	$	60,500			$	55,800
Trademarks		119,750				318,500
Record music catalog		75,500				198,500
In-process research and development		0				213,000
Notes payable		(70,500	)			(62,650	)

Precombination book values for the two companies are as follows:

	NewTune				On-the-Go
Cash	$	74,250			$	34,000
Receivables		80,750				60,500
Trademarks		423,000				119,750
Record music catalog		854,000				75,500
Equipment (net)		386,000				118,000
Totals	$	1,818,000			$	407,750
Accounts payable	$	(127,000	)		$	(53,250	)
Notes payable		(415,000	)			(70,500	)
Common stock		(400,000	)			(50,000	)
Additional paid-in capital		(30,000	)			(30,000	)
Retained earnings		(846,000	)			(204,000	)
Totals	$	(1,818,000	)		$	(119,750	)

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.

b) 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. 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 $0 Total liabilities and equities $0

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 Receivables Investment in On-the-Go Trademarks Record music catalog Research and development asset Equipment Goodwill Total assets $0 $0 $0 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Total liabilities and equities $0 $0 $0 $0 $0

Answer 1

A)

Date	Accounts	Debit	Credit
Jan 1, 2018	Cash	34,000
	Receivables	55800
	Trademarks	318500
	Record Music catalog	198500
	Equipments	118000
	Research and Development	213000
	Goodwill	33000
	To Notes Payable		62650
	To Accounts Payable		53250
	To Common Stock (17098*4)		68392
	To Additional Paid-in Capital (17098*46)		786508
Jan 1, 2018	Additional Paid in Capital	26700
	To cash		26700

NEWTUNE COMPANY AND ON THE GO INCC
Post-Combination balance Sheet
Assets		Liabilities and Stockholders' Equity
Cash (74250+34000-26700)	81550	Accounts Payable	180250
Receivables	136550	Notes Payable	477650
Trademarks	741500	Common Stock	468392
Record Music catalog	1052500	Additional Paid in Capital (30000+786508-26700)	789808
Research and Development	213000	Retained Earnings	846000
Equipment	504000
Goodwill	33000
Total Assets	2762100	TotalLiabilities and Stockholders' Equity	2762100

B)

Date	Accounts	Debit	Credit
Jan 1, 2018	Investment in On-The-Go Inc	854900
	To Common Stock		68392
	To Additional Paid in Capital		786508
Jan 1, 2018	Additional Paid in Capital	26700
	To cash		26700

Acquisition Date Fair Value Allocation Schedule
Fair Value of Consideration transferred by Newtune		854900
Less: Book value of On-the-Go		284000
Excess of fair value over book value		570900
Allocation made to specific accounts based on acquisition date
Receivables (60500 - 55800)	-4700
Trademarks (119750 - 318500)	198750
Record music catalog (75500-198500)	123000
Reseach and Development	213000
Notes Payable (70500 - 62650)	7850	537900
Excess fair value allocated to Goodwill		33000

NEWTUNE COMPANY AND ON THE GO INCC
Post-Combination balance Sheet
NEWTUNE COMPANY AND ON THE GO INCC Post-Combination balance Sheet Consolidation Entries Accounts Newtune Co On-The-Go Inc. Debit Credit Consolidated Total Cash 47550 34000 81550 Receivables 80750 60500 4700 136550 Trademarks 423000 119750 198750 741500 Record music catalog 854000 75500 123000 1052500 Research and development 213000 213000 Equipment 386000 118000 504000 Investment in On-The-Go Inc. 854900 854900 0 Goodwill 33000 33000                    Total Assets 2762100 Accounts Payable 127000 53250 180250 Notes Payable 415000 70500 7850 477650 Common Stock 468392 50000 50000 468392 Additional paid-in capital 789808 30000 30000 789808 Retained Earnings 846000 204000 204000 846000               Total liabilities and equity 2762100 Note: a) Cash balance for Newtune company has been reduced for payment of $26,700 stock registration expenses and issuance costs.

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