Question
On January 1, NewTune Company exchanges 18,235 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 18,235 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 $24,100 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 | $ | 42,750 | $ | 38,400 | |||
Trademarks | 118,750 | 308,500 | |||||
Record music catalog | 80,250 | 248,250 | |||||
In-process research and development | 0 | 218,250 | |||||
Notes payable | (52,500 | ) | (46,100 | ) | |||
Precombination book values for the two companies are as follows:
NewTune | On-the-Go | ||||||
Cash | $ | 66,500 | $ | 31,750 | |||
Receivables | 153,500 | 42,750 | |||||
Trademarks | 463,000 | 118,750 | |||||
Record music catalog | 851,000 | 80,250 | |||||
Equipment (net) | 333,000 | 117,000 | |||||
Totals | $ | 1,867,000 | $ | 390,500 | |||
Accounts payable | $ | (151,000 | ) | $ | (37,000 | ) | |
Notes payable | (406,000 | ) | (52,500 | ) | |||
Common stock | (400,000 | ) | (50,000 | ) | |||
Additional paid-in capital | (30,000 | ) | (30,000 | ) | |||
Retained earnings | (880,000 | ) | (221,000 | ) | |||
Totals | $ | (1,867,000 | ) | $ | (390,500 | ) | |
- 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.
- 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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