Consolidated Balance Sheet Working Paper, Bargain Purchase

On January $1,2022,$ Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $$2$ 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 $$2,860$ $$720$

Inventory $1,700900$

Equity method investments $--300$

Land $650175$

Buildings and equipment, net $2,400600$

Total assets $$7,610$ $$2,695$

Liabilities and Shareholders' Equity

Current liabilities $1,5001,000$

Long$-$term debt $2,000845$

Common stock, par value $50050$

Additional paid$-$in capital $1,200200$

Retained earnings $2,410600$

Total liabilities and shareholders$$ equity $$7,610$ $$2,695$

Several of Saxon$$s assets 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 $$500$

Equity method investments $400$

Land $450$

Buildings and equipment, net $1,100$

In addition, Saxon had previously unrecorded identifiable assets valued at $$875$ million.

Required

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

$Answer $1$

$200$

million

$($b$)$ Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at January $1,2022.$

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 $2$

$2,860$

Answer $3$

$720$

Answer $4$

$3,580$

Inventory Answer $5$

$1,700$

Answer $6$

$900$

Answer $7$

$500$

$($R$)$ Answer $8$

$3,100$

Equity method investments $--$ Answer $9$

$300$

$($R$)$ Answer $10$

$100$

Answer $11$

$400$

Investment in Saxon Answer $12$

$0$

Answer $13$

$0$

$($E$)--$

Answer $14$

$0$

$($R$)$

Land Answer $15$

$650$

Answer $16$

$175$

$($R$)$ Answer $17$

$275$

Answer $18$

$1,100$

Buildings and equipment, net Answer $19$

$2,400$

Answer $20$

$600$

$($R$)$ Answer $21$

$500$

Answer $22$

$3,500$

Identifiable intangibles $----($R$)$ Answer $23$

$875$

Answer $24$

$875$

Current liabilities Answer $25$

$1,500$

Answer $26$

$1,000$

Answer $27$

$2,500$

Long$-$term debt Answer $28$

$2,000$

Answer $29$

$845$

Answer $30$

$2,845$

Common stock, par value Answer $31$

$500$

Answer $32$

$50$

$($E$)$ Answer $33$

$0$

Answer $34$

$550$

Additional paid$-$in capital Answer $35$

$1,200$

Answer $36$

$200$

$($E$)$ Answer $37$

$0$

Answer $38$

$1,400$

Retained earnings Answer $39$

$2,410$

Answer $40$

$600$

$($E$)$ Answer $41$

$0$

Answer $42$

$3,010$

Total Answer $43$

$7,610$

Answer $44$

$2,695$

Answer $45$

$1,750$

Answer $46$

$500$

Answer $47$

$11,180$

$($c$)$ Present the consolidated balance sheet, in good form, at the date of acquisition.

Paxon Corporation and Subsidiary

Consolidated Balance Sheet

Date of Acquisition

$($in millions$)$

Assets Liabilities

Cash and receivables Answer $48$

$3,580$

Current liabilities Answer $49$

$2,500$

Inventory Answer $50$

$3,100$

Long$-$term debt Answer $51$

$2,845$

Long$-$term investments Answer $52$

$400$

Total liabilities Answer $53$

$5,345$

Land Answer $54$

$1,100$

Buildings and equipment, net Answer $55$

$3,500$

Shareholders$$ equity

Identifiable intangibles Answer $56$

$875$

Common stock, par value Answer $57$

$550$

Additional paid$-$in capital Answer $58$

$1,400$

Retained earnings Answer $59$

$3,010$

Total equity Answer $60$

$4,960$

Total assets Answer $61$

$12,555$

Total liabilities and equity Answer $62$

$10,305$