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:

(Need help with the red X's. in Part C.)

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) Paxon Saxon $3,370 $800 2,260 940 -- (in millions) Cash and receivables Inventory Equity method investments Investment in Saxon Land 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 1,942.2 650 300 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 $ 1520 180 1700 $ 1295 -100 -50 Book value Revaluations: Inventory Equity method investments Land Building and equipment Identifiable intangibles Gain on acquisition 245 300 110 1800 $ 100 (b) 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 Total Equity in NI interest in NI 345$ 310.5$ 34.5 90 10 (in millions) Saxon's reported net income for 2019 $ Revaluation write-offs Inventory Equity method investments Buildings and equipment Identifiable intangibles $ 100 50 45 5 -1.5 -15 -22 - 13.5 -19.8 -2.2 458$ 412.2$ 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. Consolidation Working Paper Accounts Taken From Books Eliminations Debit Credit (in millions) Cash and receivables Inventory Paxon Dr (Cr) $3,370 2,260 Saxon Dr (Cr) $800 940 (0-1) Consolidated Balances Dr (Cr) 4170 3200 100 100 (R) Debit Credit Dr (Cr) $3,370 2,260 Dr (Cr) $800 Dr (Cr) 4170 $ 100 3200 (in millions) Cash and receivables Inventory Equity method investments Identifiable intangible assets Investment in Saxon 940 (0-1) (0-2) 0 50 110 100 (R) 50 (R) 22 (0-4) X (C) (R) 88 1,942.2 0 X (E) X (R) Land 650 300 245 1195 (R) (R) 300 15 (0-3) 5035 -3220 -5450 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) (E) 100 350 -500 -1200 (E) (E) 845 -2410 0X (E) -215.8 0X (R) 0X (N) 0X (C) 10 (N) Dividends 500 100 500 (10,000) -40000 (30,000) (412.2) (100) (C) 412.2 0 -100 Sales revenue Equity in net income of Saxon Gain on acquisition Gain on sale of securities Cost of goods sold Depreciation and amortization expense -60 50 (0-2) 100 (0-1) 26,000 (10) 8,000 40 (0-3) (0-4) 33900 377 300 15 22 250 25 275 2,770 1,600 4370 Interest expense Other operating expenses Noncontrolling interest in NI Total (N) 45.8 45.8 $ 0 $0 $ 2595 $ 2595 $ 07