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On January 1, 2015, New Tune Company exchanges 16,888 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of New Tune'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. New Tune also paid $38,600 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:
Book Values
Fair Values
Receivables
$
29,250
22,900
Trademarks
106,500
282,000
Record music catalog
67,000
190,000
In-process research and development
0
221,250
Notes payable
(62,500
)
(54,500
Recombination January 1, 2015, book values for the two companies are as follows:
New Tune
On-the-Go
Cash
64,000
45,000
117,000
494,000
868,000
Equipment (net)
402,000
150,000
Totals
1,945,000
397,750
Accounts payable
(158,000
(44,750
(450,000
Common stock
(400,000
(50,000
Additional paid-in capital
(30,000
Retained earnings
(907,000
(210,500
(1,945,000
(397,750
Total common stock is $467,552
Additional paid-in capital is $776,848 as per calculation from the acquisition and $38,600 for stock issuance should be included.
Note: Parentheses indicate a credit balance.
a.
Assume that this combination is a statutory merger so that On-the-Go's accounts will be transferred to the records of New Tune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a post combination balance sheet for New Tune 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. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)
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