Consolidated Balance Sheet Working Paper, Bargain Purchase

On December 31, 2012, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $3.6 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, are shown below:

Balance Sheets (in millions)		Paxon	Saxon
Assets
Cash and receivables		$5,720	$1,440
Inventory		3,400	1,800
Long-term marketable securities		--	600
Land		1,300	350
Buildings and equipment	$6,800
Less accumulated depreciation	(2,000)	4,800	1,200	net
Total assets		15,220	5,390
Liabilities and Stockholders' Equity
Current liabilities		3,000	2,000
Long-term debt		4,000	800
Common stock, par value		1,000	200
Additional paid-in capital		2,400	700
Retained earnings		4,820	1,690
Total liabilities and equity		$15,220	$5,390

Several of Saxon's assets and liabilities had fair values that were different from their book values. Estimates of the fair values of these items follow:

(in millions)	Estimated Fair Value
Inventory	$2,000
Long-term marketable securities (held-to-maturity portfolio)	500
Land	840
Buildings and equipment, net	1,800
Long-term debt	580

(a) Calculate the gain on acquisition in this bargain purchase. $Answer

million (b) Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at December 31, 2012.

Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.

Consolidation Working Paper
	Accounts Taken From Books		Eliminations
(in millions)	Paxon Dr (Cr)	Saxon Dr (Cr)		Debit	Credit		Consolidated Balances Dr (Cr)
Cash and receivables	$Answer	$Answer					$Answer
Inventory	Answer	Answer	(R)	Answer			Answer
Marketable securities		Answer			Answer	(R)	Answer
Investment in Saxon	Answer				Answer	(E)	Answer
					Answer	(R)
Land	Answer	Answer	(R)	Answer			Answer
Buildings and equipment, net	Answer	Answer	(R)	Answer			Answer
Current liabilities	Answer	Answer					Answer
Long-term debt	Answer	Answer		Answer			Answer
Common stock, par value	Answer	Answer	(E)	Answer			Answer
Additional paid-in capital	Answer	Answer	(E)	Answer			Answer
Retained earnings	Answer	Answer	(E)	Answer			Answer
Total	$Answer	$Answer		$Answer	$Answer		$Answer