Problem 2-33 (LO 2-4, 2-5, 2-6a, 2-6b, 2-6c, 2-7, 2-8) On January 1, NewTune Com

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 18,100 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 $33,500 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: Fair Values 66,000 282, 000 227,000 271,500 Book Values Receivables Trademarka Record music catalo In-process research and development Notes payable S 68,750 113,250 68,750 (72,250) 65,700) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash Receivables Trademarks Record music catalog Equipment (net) Totals 70,750 40,500 68,750 113,250 68,750 110,000 $1,853,000 401,250 30,250 486,000 853,000 13, 000 nts payable $(177,000) (56,000) (379, 000) Notes payable Common stock Additional paid-in capital Retained earnings Totals (72, 250) (400, 000) 50,000) (30, 000) 30, 000) (193,000) $(113, 250) $(1,853,000) 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 wll 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

Explanation / Answer

In the initial stage, we have to calculate the purchase consideration.

For purchase consideration, the company's costs for stock registration and issuance is used.

Total cost in exchanging common stock = 18,100 * $50= 905,000

Total purchase consideration= 905,000 + 33,500= 938,500.

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