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Kaplan AC 450 Advanced Accounting Unit 2 Problem 2-28




Question;Problem 2-28 [LO4, LO5, LO6, LO7, LO8]On January 1, 2013, NewTune Company exchanges 18,688 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 $35,250 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:BookValues FairValuesReceivables $ 51,750 $ 49,150Trademarks 96,000 267,750Record music catalog 84,500 240,500In-process research and development 0 265,500Notes payable (72,000 ) (63,750 )________________________________________Precombination January 1, 2013, book values for the two companies are as follows:NewTune On-the-GoCash $ 70,000 $ 41,000Receivables 140,000 51,750Trademarks 418,000 96,000Record music catalog 931,000 84,500Equipment (net) 333,000 138,000Totals $ 1,892,000 $ 411,250Accounts payable $ (113,000 ) $ (38,250 )Notes payable (467,000 ) (72,000 )Common stock (400,000 ) (50,000 )Additional paid-in capital (30,000 ) (30,000 )Retained earnings (882,000 ) (221,000 )Totals $ (1,892,000 ) $ (411,250 )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 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. (Input all amounts as positive values.)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. (Leave no cells blank - be certain to enter "0" wherever required. Enter the consolidation entries of 'Investment in On-the-Go, Inc.' in order of (S) Elimination of subsidiary?s stockholders? equity and (A) Allocation of On-the-Go's consideration fair value in excess of book value. Input all amounts as positive values.)


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