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: (in millions) Cash and receivables Inventory Equity method investments Investment in Saxon Dr(Cr) Paxon Saxon $3,370 $800 2,260 940 1,942.2 Land 650 300 Buildings and equipment, net Current liabilities Long-term debt Common stock, par value Additional paid-in capital Retained earnings, January 1 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 Total 3,600 1,150 (2,020) (1,200) (5,000) (450) (500) (100) (1,200) (350) (2,410) (845) 500 100 (30,000) (10,000) (412.2) (100) (10) 26,000 8,000 300 40 250 25 2,770 1,600 $0 $0 Several of Saxon's assets had fair values different from their book values at the acquisition date, as follows: Fair Value less (in millions) 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. Required (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 Fair value of noncontrolling interest $ 1,520 180 1,700 Book value $ 100 x Revaluations: Inventory Equity method investments Land (100) (50) 245 300 Building and equipment Identifiable intangibles Gain on acquisition 110 505 X $ (100) * Debit Credit Paxon Dr (Cr) $3,370 2,260 Balances Dr (Cr) 4,170 3,200 $ Saxon Dr (Cr) $800 940 (0-1) (0-2) (R) (in millions) Cash and receivables Inventory Equity method investments Identifiable intangible assets Investment in Saxon 100 50 50 0 OX 0 x 100 (R) (R) 0X (0-4) 1,942.2 x (C) O X (E) O X (R) 1,942.2 0 Land 650 300 245 (R) (R) 1,195 5,035 300 15 ~ (0-3) 88 x Buildings and equipment, net Current liabilities Long-term debt Common stock Additional paid-in capital Retained earnings, Jan. 1 Noncontrolling interest 3,600 (2,020) (5,000) (500) (1,200) (2,410) 1,150 (1,200) (450) (100) (350) (845) 100 (E) (E) (E) 350 (3,220) x (5,450) * (500) * (1,200) * (2,410) X 845 (215.8) X (E) 500 X (R) (40,000) * (N) (60) * (C) (100) X (N) Dividends 500 100 500 (10,000) (40,000) (30,000) (412.2) (100) (C) (412.2) * 0 0 x Sales revenue Equity in net income of Saxon Gain on acquisition Gain on sale of securities Cost of goods sold Depreciation and amortization expense 50 (0-2) (0-1) (60) 33,900 26,000 100 (10) 8,000 40 (0-3) (0-4) 300 37 X 377 0X 250 25 0 X 2,770 1,600 4,370 Interest expense Other operating expenses Noncontrolling interest in NI Total (N) 45.8 45.8 $0 $0 $ 2,595 $ 2,595 $ 0