On January 1, 2015, NewTune Company exchanges 15,000 shares of its common stock
ID: 2526617 • Letter: O
Question
On January 1, 2015, NewTune Company exchanges 15,000 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 $25,000 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:
Precombination January 1, 2015, book values for the two companies are as follows:
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.
c.How do the balance sheet accounts compare across parts (a) and (b)?
(Prepare balance sheet for a statutory merger using the acquisition method. Also, use worksheet to derive consolidated totals.)
Book Values Fair Values Receivables?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,000 $ 63,000 Trademarks?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000 225,000 Record music catalog??. . . . . . . . . . . . . . . . . . . . . . . . . 60,000 180,000 In-process research and development . . . . . . . . . . . . . –0– 200,000 Notes payable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,000) (45,000)Explanation / Answer
Post combination Balance Sheet Assets Liabilities and Owners' Equity Cash 64000 Accounts payable 144000 Receivables 213000 Notes payable 415000 Trademarks 625000 Common Stock 460000 Record music catalog 1020000 Additional paid in capital 720000 Research and development asset 200000 Retained Earnings 860000 Equipment 425000 Goodwill 52000 Total Assets 2599000 Total Liabilities and Equities 2599000 Consolidation Worksheet Consolidation Entires Newtune Co. On the Go Inc. Debit Credit Consolidated Totals Cash 35000 29000 64000 Receivables 150000 65000 2000 213000 Investment in On the go 775000 775000 0 Trademarks 400000 95000 130000 625000 Record music catalog 840000 60000 120000 1020000 Research and development asset 0 0 200000 200000 Equipment 320000 105000 425000 Goodwill 0 0 52000 52000 Total Assets 2520000 354000 2599000 Accounts payable 110000 34000 144000 Notes payable 370000 50000 5000 415000 Common Stock 460000 50000 50000 460000 Additional paid in capital 720000 30000 30000 720000 Retained Earnings 860000 190000 190000 860000 Total Liabilities and Equities 2520000 354000 275000 0 2599000
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