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On January 1, NewTune Company exchanges 17,360 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 17,360 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 $44,650 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 | $ | 44,250 | $ | 41,300 | |||
Trademarks | 117,250 | 277,750 | |||||
Record music catalog | 66,000 | 186,750 | |||||
In-process research and development | 0 | 261,000 | |||||
Notes payable | (54,750 | ) | (48,350 | ) | |||
Precombination book values for the two companies are as follows:
NewTune | On-the-Go | ||||||
Cash | $ | 62,000 | $ | 50,250 | |||
Receivables | 125,000 | 44,250 | |||||
Trademarks | 441,000 | 117,250 | |||||
Record music catalog | 873,000 | 66,000 | |||||
Equipment (net) | 344,000 | 108,000 | |||||
Totals | $ | 1,845,000 | $ | 385,750 | |||
Accounts payable | $ | (150,000 | ) | $ | (43,500 | ) | |
Notes payable | (378,000 | ) | (54,750 | ) | |||
Common stock | (400,000 | ) | (50,000 | ) | |||
Additional paid-in capital | (30,000 | ) | (30,000 | ) | |||
Retained earnings | (887,000 | ) | (207,500 | ) | |||
Totals | $ | (1,845,000 | ) | $ | (117,250 | ) | |
- 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 post-combination balance sheet for NewTune as of the acquisition date.
- 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.
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