On January 1, 2016, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for \($1.8\) billion cash. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December 31, 2016, are shown below:

Several of Saxon’s assets and liabilities had fair values different from their book values at the acquisition date, as follows:

Required

a. Prepare a schedule to compute equity in net income of Saxon for 2016, and the December 31, 2016 balance for Investment in Saxon, as reported on Paxon’s books.

b. Use a working paper to consolidate the trial balances of Paxon and Saxon at December 31, 2016.

c. Prepare the consolidated balance sheet at December 31, 2016, and the consolidated income statement for 2016.

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Dr (Cr) (in millions) Cash and receivables... Inventory... Long-term investments Investment in Saxon... Land...... Buildings and equipment, net Current liabilities..... Long-term debt Paxon Saxon $ 3,100 $ 2,260 800 940 - - 2,158 650 300 3,600 1,150 (2,020) (1,200) (5,000) (450) Common stock, par value (500) (100) Additional paid-in capital. (1,200) (350) Retained earnings, January 1. (2,610) (845) Dividends.... 500 100 Sales revenue. (30,000) (10,000) Equity in net income of Saxon (258) Gain on sale of securities... (10) Cost of goods sold. 26,000 8,000 Depreciation expense. 300 40 Interest expense.. 250 25 Other operating expenses. 2,770 1,600 Totals... $ 0 0