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)?

Transcribed Image Text:

Book Values Fair Values 65,000 63,000 95,000 225,000 Receivables Trademarks Record music catalog In-process research and development. Notes payable 60,000 180,000 0 200,000 (50, 000) (45,000) NewTune On-the-Go $ 60,000 29,000 65,000 95,000 60,000 105,000 1,770,000 354,000 .$ (110,000) (34,000) (50,000) (50,000) (30,000) (860,000) (190,000) $(1,770,000) $(354,000) as Receivables . Trademarks Record music catalog. . Equipment (net). Totals 150,000 400,000 840,000 320,000 Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings Totals (370,000) (400,000) (30,000)