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Consolidated Working Paper One Year after Acquisition, Bargain Purchase On December 31, 2012, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon

Consolidated Working Paper One Year after Acquisition, Bargain Purchase

On December 31, 2012, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1,215,000,000 cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $135,000,000 at the date of acquisition. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December 31, 2013, appear below:

Dr(Cr)
(in millions) Paxon Saxon
Cash and receivables $2,452.5 $600
Inventory 1,695 705
Marketable securities -- --
Investment in Saxon 1,471.65 --
Land 487.5 225
Buildings and equipment, net 2,700 862.5
Current liabilities (1,515) (900)
Long-term debt (3,750) (337.5)
Common stock, par value (375) (75)
Additional paid-in capital (900) (262.5)
Retained earnings, January 1 (1,957.5) (633.75)
Dividends 375 75
Sales revenue (22,500) (7,500)
Equity in net income of Saxon (174.15) --
Gain on sale of securities -- (7.5)
Cost of goods sold 19,500 6,000
Depreciation expense 225 30
Interest expense 187.5 18.75
Other operating expenses 2,077.5 1,200
Total $0 $0

Several of Saxon's assets and liabilities had fair values different from their book values at the acquisition date, as follows:

(in millions) Fair Value less Book Value
Inventory (FIFO) $75
Marketable securities (sold in 2013) (37.5)
Land 183.75
Buildings and equipment, net (20 years, straight-line) 225
Long-term debt (5 years, straight-line) (82.5)

(a) Prepare a schedule computing the gain on acquisition.

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

Calculation of gain on acquisition
Acquisition cost $Answer
Fair value of noncontrolling interest Answer
Answer
Book value $Answer
Excess of fair value over book value:
Inventory Answer
Marketable securities Answer
Land Answer
Building and equipment Answer
Long-term debt (discount) Answer Answer
Gain on acquisition $Answer

(b) Prepare a schedule calculating the equity in net income of Saxon for 2013, reported on Paxon's books, and the noncontrolling interest in income for 2013, to be reported on the consolidated income statement for 2013.

Negative signs should be used with revaluation answers only, if appropriate. Do not round answers.

(in millions) Total Equity in NI Noncontrolling interest in NI
Saxon's reported net income for 2013 $Answer $Answer $Answer
Revaluation writeoffs
Inventory Answer Answer Answer
Marketable securities Answer Answer Answer
Buildings and equipment Answer Answer Answer
Long-term debt Answer Answer Answer
$Answer $Answer $Answer

(c) Prepare a working paper to consolidate the trial balances of Paxon and Saxon at December 31, 2013.

Remember to use negative signs with your credit balance answers in the Consolidated Balance column.

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 $2,452.5 $600 $Answer
Inventory 1,695 705 (R) Answer Answer (O-1) Answer
Marketable securities - - (O-2) Answer Answer (R) Answer
Investment in Saxon 1,471.65 - Answer (C) Answer
Answer (E)
Answer (R)
Land 487.5 225 (R) Answer Answer
Buildings and equipment, net 2,700 862.5 (R) Answer Answer (O-3) Answer
Current liabilities (1,515) (900) Answer
Long-term debt (3,750) (337.5) (R) Answer Answer (O-4) Answer
Common stock (375) (75) (E) Answer Answer
Additional paid-in capital (900) (262.5) (E) Answer Answer
Retained earnings, Jan. 1 (1,957.5) (633.75) (E) Answer Answer
Noncontrolling interest Answer (E) Answer
Answer (R)
Answer (N)
Dividends 375 75 Answer (C) Answer
Answer (N)
Sales revenue (22,500) (7,500) Answer
Equity in net income of Saxon (174.15) - (C) Answer Answer
Gain on sale of securities - (7.5) Answer (O-2) Answer
Cost of goods sold 19,500 6,000 (O-1) Answer Answer
Depreciation expense 225 30 (O-3) Answer Answer
Interest expense 187.5 18.75 (O-4) Answer Answer
Other operating expenses 2,077.5 1,200 Answer
Noncontrolling interest in NI - - (N) Answer - Answer
$0 $0 $Answer $Answer $Answer

This is all the information that was given in the problem.

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