Consolidated Balance Sheet Working Paper, Date of Acquisition, Bargain Purchase

On January 1, 2016, Paxon Corporation acquired 80 percent of the outstanding common stock of the Saxon Company for $5 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, follow:

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:

The estimated fair value of the noncontrolling interest in Saxon is $1 billion.

a. Calculate the gain on acquisition and prepare Paxon's entry to record the acquisition (in millions)

• When appropriate, use negative signs with your revaluation answers (left column only).
• Do not use negative signs with your answers in the right column.
• Enter answers in millions.

Paxon's acquisition entry (in millions):

b. Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at January 1, 2016.

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

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

• Do not use negative signs with any of your answers.
• Enter answers in millions.

Please answer all of the missing boxes! Thanks in advance.

\begin{tabular}{|c|c|c|} \hline (in millions) & Paxon & Saxon \\ \hline \multicolumn{3}{|l|}{ Assets } \\ \hline Cash and receivables & $14,300 & $3,600 \\ \hline Inventory & 8,500 & 4,500 \\ \hline Equity method investments & - & 1,500 \\ \hline Land & 3,250 & 875 \\ \hline Buildings and equipment, net & 12,000 & 3,000 \\ \hline Total assets & $38,050 & $13,475 \\ \hline \multicolumn{3}{|l|}{ Liabilities and shareholders' equity } \\ \hline Current liabilities & $7,500 & $5,000 \\ \hline Long-term debt & 10,000 & 2,000 \\ \hline Common stock, par value & 2,500 & 500 \\ \hline Additional paid-in capital & 6,000 & 1,750 \\ \hline Retained earnings & 12,050 & 4,225 \\ \hline Total liabilities and shareholders' equity & $38,050 & $13,475 \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline \multicolumn{1}{|c|}{ (in millions) } & Estimated fair value \\ \hline Inventory & $5,000 \\ \hline Equity method investments & 1,250 \\ \hline Land & 2,100 \\ \hline Buildings and equipment, net & 4,500 \\ \hline Long-term debt & 1,450 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline Acquisition cost & & $ & 5,000 \\ \hline Fair value of noncontrolling interest & & & 1,000 \\ \hline Total & & $ & 6,000 \\ \hline Book value of Saxon & 6,475 & & \\ \hline \multicolumn{4}{|l|}{ Revaluations: } \\ \hline Inventory & 0% & & \\ \hline Equity method investments & 0x & & \\ \hline Land & 0% & & \\ \hline Buildings and equipment, net & 0% & & \\ \hline Long-term debt & 0% & & \\ \hline Fair value of identifiable net assets & & & 0 \\ \hline Gain on acquisition & & $ & 0 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{5}{|c|}{ General Journal } \\ \hline Description & & & & Credit \\ \hline Investment in Saxon & & & 0x & 0 \\ \hline Cash & & & 0 & 5,000 \\ \hline Gain on acquisition & & & 0 & 0x \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|l|}{\begin{tabular}{l} Consolidated Balance Sheet \\ January 1, 2016 \\ (in millions) \end{tabular}} \\ \hline \multicolumn{3}{|l|}{ Assets } \\ \hline Cash and receivables & $ & 12,900 \\ \hline Inventory & & 0 \\ \hline Current assets & & 0 \\ \hline Equity method investments & & 0x \\ \hline Land & & 0 \\ \hline Buildings and equipment, net & & 0x \\ \hline Total assets & $ & 0 \\ \hline \multicolumn{3}{|l|}{ Liabilities and shareholders' equity } \\ \hline Current liabilities & $ & 12,500 \\ \hline Long-term debt & & 0 \\ \hline Total liabilities & & 0 \\ \hline \multicolumn{3}{|l|}{ Shareholders' equity } \\ \hline \multicolumn{3}{|l|}{ Paxon shareholders' equity: } \\ \hline Common stock & & 2,500 \\ \hline Additional paid-in capital & & 6,000 \\ \hline Retained earnings & & 0x \\ \hline Total Paxon shareholders' equity & & 0 \\ \hline Noncontrolling interest & & 0 \\ \hline Total shareholders' equity & & 0x \\ \hline Total liabilities and shareholders' equity & $ & 0x \\ \hline \end{tabular}