On January 1, NewTune Company exchanges 16,329 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 $46,600 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 (credit balances in parentheses): Book Values Fair Values Receivables $ 34,000 $ 27,700 Trademarks 99,250 252,250 Record music catalog 61,500 201,000 In-process research and development 0 201,750 Notes payable (67,500 ) (61,000 ) Precombination book values for the two companies are as follows: NewTune On-the-Go Cash $ 65,250 $ 51,500 Receivables 45,750 34,000 Trademarks 488,000 99,250 Record music catalog 924,000 61,500 Equipment (net) 416,000 171,000 Total Assets $ 1,939,000 $ 417,250 Accounts payable $ (144,000 ) $ (57,250 ) Notes payable (417,000 ) (67,500 ) Common stock (400,000 ) (50,000 ) Additional paid-in capital (30,000 ) (30,000 ) Retained earnings (948,000 ) (212,500 ) Total liabilities and equities $ (1,939,000 ) $ (417,250 ) 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.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter7: Corporations: Reorganizations

Section: Chapter Questions

Problem 43P

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On January 1, NewTune Company exchanges 16,329 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 $46,600 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 (credit balances in parentheses):

	Book Values	Fair Values
Receivables	$	34,000		$	27,700
Trademarks		99,250			252,250
Record music catalog		61,500			201,000
In-process research and development		0			201,750
Notes payable		(67,500	)		(61,000	)

Precombination book values for the two companies are as follows:

	NewTune	On-the-Go
Cash	$	65,250		$	51,500
Receivables		45,750			34,000
Trademarks		488,000			99,250
Record music catalog		924,000			61,500
Equipment (net)		416,000			171,000
Total Assets	$	1,939,000		$	417,250
Accounts payable	$	(144,000	)	$	(57,250	)
Notes payable		(417,000	)		(67,500	)
Common stock		(400,000	)		(50,000	)
Additional paid-in capital		(30,000	)		(30,000	)
Retained earnings		(948,000	)		(212,500	)
Total liabilities and equities	$	(1,939,000	)	$	(417,250	)

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.

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