Consolidation Working Paper One Year after Acquisition, Bargain Purchase

On January 1, 2019, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1,520 million cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $180 million 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, 2019, appear below:

	Dr(Cr)
(in millions)	Paxon	Saxon
Cash and receivables	$3,370	$800
Inventory	2,260	940
Equity method investments	--	--
Investment in Saxon	1,942.2	--
Land	650	300
Buildings and equipment, net	3,600	1,150
Current liabilities	(2,020)	(1,200)
Long-term debt	(5,000)	(450)
Common stock, par value	(500)	(100)
Additional paid-in capital	(1,200)	(350)
Retained earnings, January 1	(2,410)	(845)
Dividends	500	100
Sales revenue	(30,000)	(10,000)
Equity in net income of Saxon	(412.2)	--
Gain on acquisition	(100)	--
Gain on sale of securities	--	(10)
Cost of goods sold	26,000	8,000
Depreciation and amortization expense	300	40
Interest expense	250	25
Other operating expenses	2,770	1,600
Total	$0	$0

Several of Saxons assets had fair values different from their book values at the acquisition date, as follows:

(in millions)	Fair Value less Book Value
Inventory (FIFO) (sold in 2019)	$(100)
Equity method investments(sold in 2019)	(50)
Land	245
Buildings and equipment, net (20 years, straight-line)	300

In addition, Saxon had previously unrecorded identifiable intangible assets valued at $110 million, with a 5-year life, straight-line.

(Need help with the ones marked incorrect in part C working paper)

(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. Enter answers in millions, using decimal places, if appropriate. Calculation of gain on acquisition Acquisition cost 1.520 Fair value of noncontrolling interest S 180 1.700 S 1.295 Book value Revaluations: Inventory Equity method investments Land Building and equipment Identifiable intangibles Gain on acquisition (100) (50) 245 300 110 1.800 100 S (6) Prepare a schedule calculating the equity in net income of Saxon for 2019, reported on Paxon's books, and the noncontrolling interest in net income for 2019, to be reported on the consolidated income statement for 2019. Use negative signs with answers that reduce net income amounts. Enter answers in millions, using decimal places, if appropriate. Noncontrolling (in millions) Total Equity in NI interest in NI Saxon's reported net income for 2019 S 3455 310.55 34.5 Revaluation write-offs Inventory 100 90 10 Equity method investments 50 45 5 Buildings and equipment (15) (13.5) (1.5) Identifiable intangibles (22) (19.8) (2.2) s 4585 412.25 45.8 (c) Prepare a working paper to consolidate the trial balances of Paxon and Saxon at December 31, 2019. Remember to use negative signs with your credit balance answers in the Consolidated Balances column. Enter answers in millions, using decimal places, if appropriate. (in millions) Cash and receivables Inventory Equity method investments Identifiable intangible assets Investment in Saxon Land Buildings and equipment, net Current liabilities Long-term debt Common stock Additional paid-in capital Retained earnings, Jan. 1 Noncontrolling interest Consolidation Working Paper Accounts Taken From Books Eliminations Consolidated Paxon Saxon Balances Dr (Cr) Dr (Cr) Debit Credit Dr (Cr) 53.370 $800 S 4,170 2.260 940 (0-1) 100 100 (R) 3.200 (0-2) 50 50 (R) (R) 110 22 (0-4) 88 1,942.2 322.2 (C) 0 1,520 X (E) 655 X (R) 650 300 (R) 245 1,195 3,600 1,150 (R) 300 15(0-3) 5,035 (2,020) (1.200) (3.220) (5.000) (450) (5,450) (500) (100) (E) 100 (500) (1.200) (350) (E) 350 (1.200) (2,410) (845) (E) 845 (2.410) 170 X (E) (215.8) OX (R) 35.8 (N) 500 100 90 (C) 500 10 (N) (30,000) (10.000) (40,000) (412.23 (C) 412.2 (100) (100) (10) 50 (0-2) (60) 26,000 8,000 100 (0-1) 33.900 300 40 (0-3) 15 377 (0-4) 22 250 25 275 2.770 1,600 4.370 (N) 45.8 45.8 SO SO S 2.5955 2.595 S Dividends Sales revenue Equity in net income of Saxon Gain on acquisition Gain on sale of securities Cost of goods sold Depreciation and amortization expense Interest expense Other operating expenses Noncontrolling interest in NI Total