Question
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
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 | ||
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 |
AnswerInvestment in SaxonGoodwillGain on acquisitionNoncontrolling interestAcquisition cost | ||
Cash | ||
AnswerInvestment 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 |
Please answer all parts of the question. |
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