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On January 1 , 2 0 2 2 , Paxon Corporation acquired 9 0 percent of the outstanding common stock of Saxon Company for $

On January 1,2022, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1.8 billion cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $150 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 31,2022, appear below:
Dr(Cr)
(in millions) Paxon Saxon
Cash and receivables $3,225 $855
Inventory 2,260530
Equity method investments ----
Investment in Saxon 2,441.5--
Land 650300
Buildings and equipment, net 3,6001,150
Current liabilities (2,020)(1,200)
Long-term debt (5,000)(450)
Common stock, par value (500)(50)
Additional paid-in capital (1,200)(200)
Retained earnings, January 1(2,410)(600)
Dividends 500250
Sales revenue (30,000)(12,000)
Equity in net income of Saxon (616.5)--
Gain on acquisition (250)--
Gain on sale of securities --(150)
Cost of goods sold 26,0008,500
Depreciation and amortization expense 30040
Interest expense 25025
Other operating expenses 2,7703,000
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 2022) $(400)
Equity method investments(sold in 2022)100
Land 275
Buildings and equipment, net (20 years, straight-line)500
In addition, Saxon had previously unrecorded identifiable intangible assets valued at $875 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 Answer
1,800
Fair value of noncontrolling interest Answer
1,500
Answer
1,950
Book value Answer
850
Revaluations:
Inventory Answer
(930)
Equity method investments Answer
100
Land Answer
(250)
Building and equipment Answer
(650)
Identifiable intangibles Answer
875
Answer
220
Gain on acquisition Answer
1,730
(b) Prepare a schedule calculating the equity in net income of Saxon for 2022, reported on Paxons books, and the noncontrolling interest in net income for 2022, to be reported on the consolidated income statement for 2022.
Use negative signs with answers that reduce net income amounts.
Enter answers in millions, using decimal places, if appropriate.
(in millions)
Total
Equity in NI Noncontrolling
interest in NI
Saxon's reported net income for 2022 Answer
585
Answer
526.5
Answer
58.5
Revaluation write-offs
Inventory Answer
(400)
Answer
(360)
Answer
(40)
Equity method investments Answer
100
Answer
90
Answer
10
Buildings and equipment Answer
25
Answer
22.5
Answer
2.5
Identifiable intangibles Answer
175
Answer
157.5
Answer
17.5
Answer
485
Answer
436.5
Answer
48.5
(c) Prepare a working paper to consolidate the trial balances of Paxon and Saxon at December 31,2022.
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
(in millions)
Paxon
Dr (Cr)
Saxon
Dr (Cr)
Debit
Credit Consolidated
Balances
Dr (Cr)
Cash and receivables $3,225 $855 Answer
4,080
Inventory 2,260530(O-1) Answer
400
Answer
400
(R) Answer
2,790
Equity method investments --(R) Answer
100
Answer
100
(O-2) Answer
0
Identifiable intangible assets --(R) Answer
875
Answer
175
(O-4) Answer
700
Investment in Saxon 2,441.5- Answer
186.5
(C) Answer
1,332.5
Answer
765
(E)
Answer
157.5
(R)
Land 650300(R) Answer
275
Answer
(1,225)
Buildings and equipment, net 3,6001,150(R) Answer
25
Answer
0
(O-3) Answer
(4,750)
Current liabilities (2,020)(1,200) Answer
(3,220)
Long-term debt (5,000)(450) Answer
(5,450)
Common stock (500)(50)(E) Answer
50
Answer
(500)
Additional paid-in capital (1,200)(200)(E) Answer
200
Answer
(1,200)
Retained earnings, Jan. 1(2,410)(600)(E) Answer
600
Answer
(24,100)
Noncontrolling interest -- Answer
85
(E) Answer
(193.5)
Answer
85
(R)
Answer
23.5
(N)
Dividends 500250 Answer
250
(C) Answer
475
Answer
25
(N)
Sales revenue (30,000)(12,000) Answer
(42,000)
Equity in net income of Saxon (616.5)-(C) Answer
436.5
Answer
(180)
Gain on acquisition (250) Answer
(250)
Gain on sale of securities --(150)(O-2) Answer
0
Answer
0
Cost of goods sold 26,0008,500 Answer
0
(O-1) Answer
0
Depreciation and amortization expense 30040(O-3) Answer
0
Answer
0
(O-4) Answer
0
Interest expense 25025 Answer
0
Other operat

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