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 $4 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, follow:

(in millions)PaxonSaxonAssetsCash and receivables$11,440$ 2,880Inventory6,8003,600Equity method investments--1,200Land2,600700Buildings and equipment, net9,6002,400Total assets$ 30,440$10,780Liabilities and stockholders' equityCurrent liabilities$ 6,000$ 4,000Long-term debt8,0001,600Common stock, par value2,000400Additional paid-in capital4,8001,400Retained earnings9,6403,380Total liabilities and stockholders' equity$30,440$10,780

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 valueInventory$ 4,000Equity method investments1,000Land1,680Buildings and equipment, net3,600Long-term debt1,160

The estimated fair value of the noncontrolling interest in Saxon is $800 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 costAnswer

Fair value of noncontrolling interestAnswer

TotalAnswer

Book value of SaxonAnswer

Revaluations:InventoryAnswer

Equity method investmentsAnswer

LandAnswer

Buildings and equipment, netAnswer

Long-term debtAnswer

Fair value of identifiable net assetsAnswer

Gain on acquisitionAnswer

Paxon's acquisition entry (in millions):

General JournalDescriptionDebitCreditAnswer

Investment in Saxon

Goodwill

Gain on acquisition

Noncontrolling interest

Acquisition cost

Answer

Answer

CashAnswer

Answer

Answer

Investment in Saxon

Goodwill

Gain on acquisition

Noncontrolling interest

Acquisition 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.

Consolidation Working PaperAccounts Taken From BooksEliminations(in millions)Paxon

Dr (Cr)Saxon

Dr (Cr)DebitCreditConsolidated Balances

Dr (Cr)Cash and receivablesAnswer

Answer

Answer

InventoryAnswer

Answer

(R)Answer

Answer

Equity method investments--Answer

Answer

(R)Answer

Investment in SaxonAnswer

--Answer

(E)Answer

Answer

(R)--LandAnswer

Answer

(R)Answer

Answer

Buildings and equipment, netAnswer

Answer

(R)Answer

Answer

Current liabilitiesAnswer

Answer

Answer

Long-term debtAnswer

Answer

(R)Answer

Answer

Common stock, par valueAnswer

Answer

(E)Answer

Answer

Additional paid-in capitalAnswer

Answer

(E)Answer

Answer

Retained earningsAnswer

Answer

(E)Answer

Answer

Noncontrolling interest----(R)Answer

Answer

(E)Answer

TotalAnswer

Answer

Answer

Answer

Answer

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

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

Consolidated Balance Sheet

January 1, 2016(in millions)AssetsCash and receivablesAnswer

InventoryAnswer

Current assetsAnswer

Equity method investmentsAnswer

LandAnswer

Buildings and equipment, netAnswer

Total assetsAnswer

Liabilities and stockholders' equityCurrent liabilitiesAnswer

Long-term debtAnswer

Total liabilitiesAnswer

Stockholders' equityPaxon stockholders' equity:Common stockAnswer

Additional paid-in capitalAnswer

Retained earningsAnswer

Total Paxon stockholders' equityAnswer

Noncontrolling interestAnswer

Total stockholders' equityAnswer

Total liabilities and stockholders' equityAnswer

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