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Consolidated Balance Sheet Working Paper, Bargain Purchase On January 1, 2019, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $1.7 billion cash. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December 31, 2019, are shown below: Dr(Cr) Paxon Saxon (in millions) Cash and receivables $3,200 $800 2,260 940 Inventory Equity method investments Investment in Saxon 2,158 Land 650 300 Buildings and equipment (net) 3,600 1,150 Current liabilities (2,020) (1,200) Long-term debt (5,000) (450) (500) (100) Common stock, par value Additional paid-in capital Retained earnings, January 1 (1,200) (350) (2,410) (845) Dividends 500 100 Sales revenue (30,000) (10,000) Equity in net income of Saxon (458) Gain on sale of securities (10) (100) Gain on acquisition Cost of goods sold Depreciation and amortization expense 26,000 8,000 300 40 Interest expense 250 25 Other operating expenses 2,770 1,600 Totals $0 $0 Several of Saxon's assets had fair values different from their book values at the acquisition date, as follows: Fair Value less Book Value (in millions) Inventory (FIFO) (sold in 2019) Equity method investments(sold in 2019) $(100) (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 to compute equity in net income of Saxon for 2019, and the December 31, 2019 balance for Investment in Saxon, as reported on Paxon's books. Instructions: 1. Enter all answers in millions. Round all answers to the nearest million, when appropriate. 2. Use negative signs with answers that reduce equity in net income and the investment account balance. Calculation of Equity in Net Income for 2019 (in millions) Saxon's reported net income for 2019 $ 345 Revaluation write-offs: 3,200 x 50 Inventory Equity method investments Buildings and equipment Identifiable intangibles (15) 22 X Equity in net income of Saxon $ 258 X Calculation of Investment Balance, December 31, 2019 (in millions) $ 2,158 X Investment balance, January 1, 2019 Equity in net income for 2019 258 X Dividends for 2019 (100) Investment balance, December 31, 2019 $ 2,158 (b) Use 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. Consolidation Working Paper Accounts Taken From Books Eliminations Paxon Saxon Consolidated Balances Dr (Cr) (in millions) Dr (Cr) Dr (Cr) Debit Credit Cash and receivables $3,200 $800 $ 4,000 Inventory 2,260 940 (0-1) 100 100(R) 3,200 Long term investments -- (0-2) 50 50 (R) 0 Investment in Saxon 2,158 322 X (C) 0 1,164 x (E) 455 X (R) Land 650 300 (R) 245 1,195 3,600 1,150 (R) 300 5,035 Buildings and equipment, net Identifiable intangibles Current liabilities 15 (0-3) 22 (0-4) (R) 110 88 (2,020) (1,200) (3,220) Long-term debt (5,000) (450) (R) (5,450) Common stock (500) (100) (E) 100 (500) (1,200) (350) (E) 350 (1,200) Additional paid-in capital Retained earnings, Jan. 1 (2,410) (845) (E) 845 (2,410) Dividends 500 100 100 (C) 500 Sales revenue (30,000) (10,000) (40,000) Sales Tevenue (30,UUU) , 140,UUU) (458) (9) 458 Equity in net income of Saxon Gain on sale of securities (10) 50 (0-2) (60) (100) (100) Gain on acquisition Cost of goods sold Depreciation and amortization expense 26,000 8,000 100 (0-1) 33,900 300 40 (0-3) 15 377 (0-4) 22 250 25 275 Interest expense Other operating expenses Total 2,770 1,600 4,370 $0 $0 $ 2,595 $ 2,595 $ 0 (c) Prepare the consolidated balance sheet at December 31, 2019, and the consolidated income statement for 2019. INSTRUCTIONS: Do not use negative signs with any of your answers below for the balance sheet and income statement. Consolidated Income Statement Year Ended December 31, 2019 (in millions) Sales $ 40,000 Cost of goods sold 34,100 x Gross margin 5,900 X Operating expenses: Depreciation and amortization expense $ 355 x Interest expense 297 x 4,370 5,022 Other operating expenses Income before other gains 878 X Gain on sale of securities 60 Gain on acquisition 938 x Net income 3,048 x Consolidated Balance Sheet Working Paper, Bargain Purchase On January 1, 2019, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $1.7 billion cash. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December 31, 2019, are shown below: Dr(Cr) Paxon Saxon (in millions) Cash and receivables $3,200 $800 2,260 940 Inventory Equity method investments Investment in Saxon 2,158 Land 650 300 Buildings and equipment (net) 3,600 1,150 Current liabilities (2,020) (1,200) Long-term debt (5,000) (450) (500) (100) Common stock, par value Additional paid-in capital Retained earnings, January 1 (1,200) (350) (2,410) (845) Dividends 500 100 Sales revenue (30,000) (10,000) Equity in net income of Saxon (458) Gain on sale of securities (10) (100) Gain on acquisition Cost of goods sold Depreciation and amortization expense 26,000 8,000 300 40 Interest expense 250 25 Other operating expenses 2,770 1,600 Totals $0 $0 Several of Saxon's assets had fair values different from their book values at the acquisition date, as follows: Fair Value less Book Value (in millions) Inventory (FIFO) (sold in 2019) Equity method investments(sold in 2019) $(100) (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 to compute equity in net income of Saxon for 2019, and the December 31, 2019 balance for Investment in Saxon, as reported on Paxon's books. Instructions: 1. Enter all answers in millions. Round all answers to the nearest million, when appropriate. 2. Use negative signs with answers that reduce equity in net income and the investment account balance. Calculation of Equity in Net Income for 2019 (in millions) Saxon's reported net income for 2019 $ 345 Revaluation write-offs: 3,200 x 50 Inventory Equity method investments Buildings and equipment Identifiable intangibles (15) 22 X Equity in net income of Saxon $ 258 X Calculation of Investment Balance, December 31, 2019 (in millions) $ 2,158 X Investment balance, January 1, 2019 Equity in net income for 2019 258 X Dividends for 2019 (100) Investment balance, December 31, 2019 $ 2,158 (b) Use 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. Consolidation Working Paper Accounts Taken From Books Eliminations Paxon Saxon Consolidated Balances Dr (Cr) (in millions) Dr (Cr) Dr (Cr) Debit Credit Cash and receivables $3,200 $800 $ 4,000 Inventory 2,260 940 (0-1) 100 100(R) 3,200 Long term investments -- (0-2) 50 50 (R) 0 Investment in Saxon 2,158 322 X (C) 0 1,164 x (E) 455 X (R) Land 650 300 (R) 245 1,195 3,600 1,150 (R) 300 5,035 Buildings and equipment, net Identifiable intangibles Current liabilities 15 (0-3) 22 (0-4) (R) 110 88 (2,020) (1,200) (3,220) Long-term debt (5,000) (450) (R) (5,450) Common stock (500) (100) (E) 100 (500) (1,200) (350) (E) 350 (1,200) Additional paid-in capital Retained earnings, Jan. 1 (2,410) (845) (E) 845 (2,410) Dividends 500 100 100 (C) 500 Sales revenue (30,000) (10,000) (40,000) Sales Tevenue (30,UUU) , 140,UUU) (458) (9) 458 Equity in net income of Saxon Gain on sale of securities (10) 50 (0-2) (60) (100) (100) Gain on acquisition Cost of goods sold Depreciation and amortization expense 26,000 8,000 100 (0-1) 33,900 300 40 (0-3) 15 377 (0-4) 22 250 25 275 Interest expense Other operating expenses Total 2,770 1,600 4,370 $0 $0 $ 2,595 $ 2,595 $ 0 (c) Prepare the consolidated balance sheet at December 31, 2019, and the consolidated income statement for 2019. INSTRUCTIONS: Do not use negative signs with any of your answers below for the balance sheet and income statement. Consolidated Income Statement Year Ended December 31, 2019 (in millions) Sales $ 40,000 Cost of goods sold 34,100 x Gross margin 5,900 X Operating expenses: Depreciation and amortization expense $ 355 x Interest expense 297 x 4,370 5,022 Other operating expenses Income before other gains 878 X Gain on sale of securities 60 Gain on acquisition 938 x Net income 3,048 x