- On January 1, 2011, 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 $25,000 in stock registration and issuance costs in connection with the merger. Several of On-the-Go’s accounts have fair values that differ from their book values on this date:
Book Values Fair Values
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 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)
Pre-combination January 1, 2011, 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) $(354,000)
Required:
Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity.
Using the acquisition method, record consolidation entry for NewTune as of acquisition date.
Prepare a post combination balance sheet for NewTune as of the acquisition date
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 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)
Pre-combination January 1, 2011, 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)
Required:
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.
Using the acquisition method, record consolidation entry for NewTune as of acquisition date.
Prepare a post combination balance sheet for NewTune as of the acquisition date