On January 1, 2015, NewTune Company exchanges 17,632 shares of its common stock
ID: 2551932 • Letter: O
Question
On January 1, 2015, NewTune Company exchanges 17,632 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 $29,550 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: Values S 52,000 $49,600 309,750 201,750 0 226,500 (57,750) (52,600) Values Receivables Trademarks Record music catalog In-process research and development Notes payable 114,000 66,750 Precombination January 1, 2015, book values for the two companies are as follows NewTune On-the-Go 83,750$35,250 115,250 52,000 493,000 114,000 879,00066,750 56,000126,000 Cash Receivables Record music catalog Equipment (net Totals $1,927,000 $ 394,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings $ (136,000) $ (45,750) 433,000) (57,750) 400,000) (50,000) (30,000) (30,000) (928.000) (210,500) Totals S (1,927,000) $(394,000) Note: Parentheses indicate a credit balance 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 NowTune as of the acquistion date NEWTUNE COMPANY AND ON-THE-GO, INC Post-Combination Balance SheetExplanation / Answer
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) $881,600
Fair value of net assets acquired:
Cash $35,250
Receivables 49,600
Trademarks 309,750
Record music catalog 201,750
In-process R&D 226,500
Equipment 126,000
Accounts payable (45,750)
Notes payable (52,600) 850,500
Goodwill $31,100
Entry by NewTune to record combination with On-the-Go:
Cash 35,250
Receivables 49,600
Trademarks 309,750
Record Music Catalog 201,750
Capitalized R&D 226,000
Equipment 126,000
Goodwill 31,100
Accounts Payable 45,750
Notes Payable 52,600
Common Stock (NewTune par value) 70,528
Additional Paidin Capital 810,572
(To record merger with On-the-Go at fair value)
Additional Paidin Capital 29,550
Cash 29,550
(Stock issue costs incurred)
Post-Combination Balance Sheet:
Assets Liabilities and Owners’ Equity
Cash $ 89,450 Accounts payable $ 181,750
Receivables 164,850 Notes payable 485,600
Trademarks 802,750
Record music catalog 1,080,750
Capitalized R&D 226,500 Common stock 470,528
Equipment 482,000 Additional paidin capital 811,522
Goodwill 31,100 Retained earnings 928,000
Total $ 2,877,400 Total $ 2,877,400
b. Because On-the-Go continues as a separate legal entity, NewTune first records the acquisition as an investment in the shares of On-the-Go.
Investment in On-the-Go Co 881,600
Common Stock (NewTune, Inc., par value) 70,528
Additional Paidin Capital 810,572
(To record acquisition of On-the-Go's shares)
Additional Paidin Capital 29,550
Cash 29,550
(Stock issue costs incurred)
Next, NewTune’s accounts are adjusted for the entries above to facilitate the worksheet preparation of the consolidated financial statements.
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