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 $2 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, follow:

(in millions)		Paxon	Saxon
Assets
Cash and receivables		$ 5,720	$ 1,440
Inventory		3,400	1,800
Equity method investments		--	600
Land		1,300	350
Buildings and equipment, net		4,800	1,200
Total assets		$ 15,220	$5,390
Liabilities and shareholders' 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 shareholders' 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
Equity method investments	500
Land	840
Buildings and equipment, net	1,800
Long-term debt	580

The estimated fair value of the noncontrolling interest in Saxon is $400 million.

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

Paxon's acquisition entry (in millions):

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

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	Answer	Answer					Answer
Inventory	Answer	Answer	(R)	Answer			Answer
Equity method investments	--	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	(R)	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
Noncontrolling interest	--	--	(R)	Answer	Answer	(E)	Answer
Total	Answer	Answer		Answer	Answer		Answer

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	Answer
Inventory	Answer
Current assets	Answer
Equity method investments	Answer
Land	Answer
Buildings and equipment, net	Answer
Total assets	Answer
Liabilities and shareholders' equity
Current liabilities	Answer
Long-term debt	Answer
Total liabilities	Answer
Shareholders' equity
Paxon shareholders' equity:
Common stock	Answer
Additional paid-in capital	Answer
Retained earnings	Answer
Total Paxon shareholders' equity	Answer
Noncontrolling interest	Answer
Total shareholders' equity	Answer
Total liabilities and shareholders' equity	Answer