On January 1, 2015, NewTune Company exchanges 15,000 shares of its common stock
ID: 2526853 • Letter: O
Question
On January 1, 2015, 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’ fair values differ from their book values on this date:
Precombination January 1, 2015, book values for the two companies are as follows:
a.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. Prepare a postcombination balance sheet for NewTune as of the acquisition date.
b.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.
c.How do the balance sheet accounts compare across parts (a) and (b)?
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)Explanation / Answer
a. Post-Combination Balance Sheet: Assets Amount Liabilities and Owners’ Equity Amount Cash ($60000+($29000-$25000) $64,000 Accounts Payable (110000+34000) $144,000 Receivables $150000+63000) $213,000 Notes Payable (370000+45000) $415,000 Trademarks (400000+225000) $625,000 Common stock (400,000+60000) $460,000 Record Music Catalog (840000+180000) $1,020,000 Additional paid?in capital (30000+690000-25000) $695,000 Capitalized R&D $200,000 Retained Earnings $860,000 Equipment (320000+105000) $425,000 Goodwill $27,000 Total $2,574,000 Total $2,574,000 W/Note-1: Calculation of Goodwill Fair value of consideration transferred (shares issued) (15000shares x $50) $750,000 Cash $29,000 Receivables $63,000 Trademarks $225,000 Record music catalog $180,000 In-process R&D $200,000 Equipment $105,000 Accounts payable ($34,000) Notes payable ($45,000) $723,000 Goodwill ($27,000) Entry by NewTune to record combination with On-the-Go: Cash $29,000 Receivables $63,000 Trademarks $225,000 Record Music Catalog $180,000 Capitalized R&D $200,000 Equipment $105,000 Goodwill $27,000 Accounts Payable $34,000 Notes Payable $45,000 Common Stock (NewTune par value) 15000 shares x $4 $60,000 Additional Paid?in Capital (15000x ($50 -$4) $690,000 (To record merger with On-the-Go at fair value) Additional Paid?in Capital $25,000 Cash $25,000 (Stock issue costs incurred) Consolidated WorkSheet Consolidation Entries Consolidated NewTune, Inc. On-the-Go Co. Debit Credit Totals Cash $35,000 $29,000 $64,000 Receivables $150,000 $65,000 $2,000 $213,000 Investment in On-the-Go $750,000 $750,000 $0 $0 Trademarks $400,000 $95,000 $130,000 $625,000 Record music catalog $840,000 $60,000 $120,000 $1,020,000 Research & Development Asset $200,000 $200,000 Equipment $320,000 $105,000 - $425,000 Goodwill $27,000 $27,000 Totals $2,495,000 $554,000 $2,574,000 Accounts payable $110,000 $34,000 - - $144,000 Notes payable $370,000 $50,000 $5,000 $415,000 Common stock $460,000 $50,000 $50,000 - $460,000 Additional paid-in capital *** $695,000 $30,000 $30,000 - $695,000 Retained earnings $860,000 $190,000 $190,000 - $860,000 Totals $2,495,000 $354,000 $2,574,000 *** ( $690000+$30000-$25000)=695000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.