Question
On January 1, NewTune Company exchanges 15,000 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTunes shares
On January 1, NewTune Company exchanges 15,000 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 $25,000 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 (credit balances in parentheses):
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)
Precombination book values for the two companies are as follows:
NewTune On-the-Go
Cash $60,000 $29,000
Receivables $150,000 $65,000
Trademarks $400,000 $95,000
Record music catalog $840,000 $60,000
Equipment (net) $320,000 $105,000
Totals $ 1,770,000 $ 354,000
Accounts payable $ (110,000) $(34,000)
Notes payable $ (370,000) $ (50,000)
Common stock $ (400,000) $ (50,000)
Additional paid-in capital $ (30,000) $ (30,000)
Retained earnings $ (860,000) $ (190,000)
Totals $ (1,770,000) $ (354,000)
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. A. Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities.
B. 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)?
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