Homework SourseOn January 1 NewTune Company exchanges 18668 shares of its c
On January 1, NewTune Company exchanges 18,668 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 $33,550 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 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.
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.
| Book Values | Fair Values | ||||||
| Receivables | $ | 47,250 | $ | 44,850 | |||
| Trademarks | 114,500 | 302,750 | |||||
| Record music catalog | 84,250 | 251,500 | |||||
| In-process research and development | 0 | 235,500 | |||||
| Notes payable | (70,250 | ) | (64,950 | ) | |||
Solution
a
| In accounting for the combination of NewTune and On-the-Go, the fair value of the acquisition is allocated to each identifiable asset and liability acquired with any remaining excess attributed to goodwill. |
