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 $6 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, follow:

(in millions)		Paxon	Saxon
Assets
Cash and receivables		$ 17,160	$ 4,320
Inventory		10,200	5,400
Equity method investments		--	1,800
Land		3,900	1,050
Buildings and equipment, net		14,400	3,600
Total assets		$ 45,660	$16,170
Liabilities and shareholders' equity
Current liabilitiess		$ 9,000	$ 6,000
Long-term debt		12,000	2,400
Common stock, par value		3,000	600
Additional paid-in capital		7,200	2,100
Retained earnings		14,460	5,070
Total liabilities and shareholders' equity		$ 45,660	$ 16,170

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	$ 6,000
Equity method investment	1,500
Land	2,520
Buildings and equipment, net	5,400
Long-term debt	1,740

The estimated fair value of the noncontrolling interest in Saxon is $1.2 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.

Acquisition cost
Fair value of noncontrolling interest
Total
Book value of Saxon
Revaluations:
Inventory
Equity method investments
Land
Buildings and equipment, net
Long-term debt
Fair value of identifiable net assets
Gain on acquisition

Paxon's acquisition entry (in millions):

General Journal
Description	Debit	Credit
Investment in SaxonGoodwillGain on acquisitionNoncontrolling interestAcquisition cost
Cash
Investment in SaxonGoodwillGain on acquisitionNoncontrolling interestAcquisition cost

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.

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
Inventory			(R)
Equity method investments	--					(R)
Investment in Saxon		--				(E)
						(R)	--
Land			(R)
Buildings and equipment, net			(R)
Current liabilities
Long-term debt			(R)
Common stock, par value			(E)
Additional paid-in capital			(E)
Retained earnings			(E)
Noncontrolling interest	--	--	(R)			(E)
Total

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.

Consolidated Balance Sheet January 1, 2016
(in millions)
Assets
Cash and receivables
Inventory
Current assets
Equity method investments
Land
Buildings and equipment, net
Total assets
Liabilities and shareholders' equity
Current liabilities
Long-term debt
Total liabilities
Shareholders' equity
Paxon shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Total Paxon shareholders' equity
Noncontrolling interest
Total shareholders' equity
Total liabilities and shareholders' equity