Question

Problem 2-33 (LO 2-4, 2-5, 2-6a, 2-6b, 2-6c, 2-7, 2-8) On January 1, NewTune Company exchanges 17,949 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 $23,500 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 $ 35,250 $ 29,150 Trademarks 102,500 255,500 Record music catalog 80,000 267,500 In-process research and development 0 223,500 Notes payable (66,250 ) (56,900 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 74,000 $ 30,000 Receivables 128,000 35,250 Trademarks 411,000 102,500 Record music catalog 928,000 80,000 Equipment (net) 379,000 166,000 Totals $ 1,920,000 $ 413,750 Accounts payable $ (189,000 ) $ (51,500 ) Notes payable (465,000 ) (66,250 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (836,000 ) (216,000 ) Totals $ (1,920,000 ) $ (102,500 ) 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. 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. 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 $0 Total liabilities and equities $0 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. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.) Show less 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

Fair Value of consideration transferred=(17949 shares @$50)	$             897,450.00
Fair Value of Net assets acquired
Cash	$               30,000.00
Accounts Receivable	$               29,150.00
Trademarks	$             255,500.00
Record Music Catalog	$             267,500.00
In -Process R&D	$             223,500.00
Equipment	$             166,000.00
Accounts Payable	$             (51,500.00)
Notes Payable	$             (56,900.00)
Goodwill	$               34,200.00
Entry by New Tune to record combination with On-the-Go
Particular	Amount (Dr)	Amount (Cr)
Cash	$               30,000.00
Accounts Receivable	$               29,150.00
Trademarks	$             255,500.00
Record Music Catalog	$             267,500.00
In -Process R&D	$             223,500.00
Equipment	$             166,000.00
Goodwill	$               34,200.00
To Accounts Payable		$                              51,500.00
To Notes Payable		$                              56,900.00
To Common Stock=(17949*$4)		$                              71,796.00
To Additional Paid in Capital(17949*$46)		$                            825,654.00
Additional Paid in capital	$23,500
To Cash		$23,500
(Being amount of registeration and issuance cost)
Post combination Balance sheet
Assets	Amount	Liabilities	Amount
Cash	104000	Accounts Payable	240500
Accounts Receivable	157150	Notes Payable	521900
Trademarks	666500	Common Stock	400000
Record Music Catalog	1195500	Additional Paid in Capital	30000
In -Process R&D	223500	Retained Earnings	836000
Equipment	545000		897450
Goodwill	34200
	2925850		2925850
	Consolidated Balance Sheet Worksheet
			Adjustments
ITEM	New Tune Inc.	On-the-Go Co.	DR	CR	Consolidated
Cash	$               74,000.00	$                              30,000.00			$       104,000.00
Receivable	$             128,000.00	$                              35,250.00		$                     6,100.00	$       157,150.00
Trademarks	$             411,000.00	$                            102,500.00	$      153,000.00		$       666,500.00
Record Music Catalog	$             928,000.00	$                              80,000.00	$      187,500.00		$   1,195,500.00
In Process R&D		$                                             -	$      233,500.00		$       223,500.00
Equipment	$             379,000.00	$                            166,000.00			$       545,000.00
Investment in On the Go Co.	$             897,450.00			$                897,450.00	$    (897,450.00)
Goodwill			$        34,200.00		$         34,200.00
Total Debits	$         2,817,450.00	$                            413,750.00	$      608,200.00	$                903,550.00	$   2,028,400.00
Accounts Payable	$             189,000.00	$                              51,500.00			$       240,500.00
Note Payable	$             465,000.00	$                              66,250.00	$          9,350.00		$       521,900.00
Common Stock	$             400,000.00	$                              50,000.00	$        50,000.00		$       400,000.00
Additional Paid in capital	$               30,000.00	$                              30,000.00	$        30,000.00		$         30,000.00
Retained Earnings	$             836,000.00	$                            216,000.00	$      216,000.00		$       836,000.00
Total Credits	$         1,920,000.00	$                            413,750.00	$ 1,521,750.00		$   2,028,400.00