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Check my workCheck My Work button is now enabled Item 10 Item 10 0.5 points On January 1, NewTune Company exchanges 18,688 shares of its

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Item 10

Item 10 0.5 points

On January 1, NewTune Company exchanges 18,688 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTunes 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-Gos fair value. NewTune also paid $35,250 in stock registration and issuance costs in connection with the merger.

Several of On-the-Gos accounts fair values differ from their book values on this date:

Book Values Fair Values
Receivables $ 51,750 $ 49,150
Trademarks 96,000 267,750
Record music catalog 84,500 240,500
In-process research and development 0 265,500
Notes payable (72,000 ) (63,750 )

Precombination book values for the two companies are as follows:

NewTune On-the-Go
Cash $ 70,000 $ 41,000
Receivables 140,000 51,750
Trademarks 418,000 96,000
Record music catalog 931,000 84,500
Equipment (net) 333,000 138,000
Totals $ 1,892,000 $ 411,250
Accounts payable $ (113,000 ) $ (38,250 )
Notes payable (467,000 ) (72,000 )
Common stock (400,000 ) (50,000 )
Additional paid-in capital (30,000 ) (30,000 )
Retained earnings (882,000 ) (221,000 )
Totals $ (1,892,000 ) $ (411,250 )

  1. Assume that this combination is a statutory merger so that On-the-Gos 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.
  2. 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-Gos 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.

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