Question

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. The balance sheets of Paxon and Saxon, immediately prior to the combination, are shown below:

Balance Sheets (in millions)		Paxon	Saxon
Assets
Cash and receivables		$2,860	$720
Inventory		1,700	900
Equity method investments		--	300
Land		650	175
Buildings and equipment, net		2,400	600
Total assets		$7,610	$2,695
Liabilities and Shareholders' Equity
Current liabilities		1,500	1,000
Long-term debt		2,000	400
Common stock, par value		500	100
Additional paid-in capital		1,200	350
Retained earnings		2,410	845
Total liabilities and shareholders’ equity		$7,610	$2,695

Several of Saxon’s assets had fair values that were different from their book values. Estimates of the fair values of these items follow:

(in millions)	Estimated Fair Value
Inventory	$800
Equity method investments	250
Land	420
Buildings and equipment, net	900

In addition, Saxon had previously unrecorded identifiable assets valued at $110 million.  

Required

(a) Calculate the gain on acquisition in this bargain purchase.
$Answer million

(b) Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at January 1, 2019.

Remember to use negative signs with your credit balance answers in the Dr (Cr) columns.

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	$Answer	$Answer					$Answer
Inventory	Answer	Answer			Answer	(R)	Answer
Equity method investments	--	Answer			Answer	(R)	Answer
Investment in Saxon	Answer				Answer	(E)	--
					Answer	(R)
Land	Answer	Answer	(R)	Answer			Answer
Buildings and equipment, net	Answer	Answer	(R)	Answer			Answer
Identifiable intangibles	--	--	(R)	Answer			Answer
Current liabilities	Answer	Answer					Answer
Long-term debt	Answer	Answer					Answer
Common stock, par value	Answer	Answer	(E)	Answer			Answer
Additional paid-in capital	Answer	Answer	(E)	Answer			Answer
Retained earnings	Answer	Answer	(E)	Answer			Answer
Total	$Answer	$Answer		$Answer	$Answer		$Answer

(c) Present the consolidated balance sheet, in good form, at the date of acquisition.

Paxon Corporation and Subsidiary Consolidated Balance Sheet January 1, 2019
(in millions)
Assets			Liabilities
Cash and receivables	$Answer		Current liabilities	$Answer
Inventory	Answer		Long-term debt	Answer
Long-term investments	Answer		Total liabilities	Answer
Land	Answer
Buildings and equipment, net	Answer		Shareholders’ equity
Identifiable intangibles	Answer		Common stock, par value	Answer
			Additional paid-in capital	Answer
			Retained earnings	Answer
			Total equity	Answer
Total assets	$Answer		Total liabilities and equity	$Answer

Answer 1

Ans: A) Computation of Gain on Acqusition of Saxon

Particulars		Amount in Million ($)
Assets
Cash and receivables	$720
Inventory	800
Land	420
Buildings and equipment, net	900
Equity method investments	250
Intangible assets	110
Total		$3,200
Less
Current liabilities	1,000
Long-term debt	400
Investment in Saxon	1700
		3,100
Gain on Acqusition		$100

Consolidation Working Paper

	Accounts Taken From Books		Eliminations		Consolidated
(in millions)	Paxon	Saxon	Debit	Credit	Balances Dr (Cr)
	Dr (Cr)	Dr (Cr)
Cash and receivables	1,160	720			1,880
Inventory	1,700	900		100	2,500
Land	650	175	245		1070
Buildings and equipment, net	2400	600	300		3300
Equity method investments		300		50	250
Intangible assets			110		110
Investment in Saxon	1700			1700	0
	7,610	2695	655	1850	9,110
Current liabilities	1500	1000			2500
Long-term debt	2000	400			2400
Common stock, par value	500	100	100		500
Additional paid-in capital	1200	350	350		1200
Retained earnings	2410	845	845	100	2510
Total	7610	2695	1295	100	9110

(c) Present the consolidated balance sheet, in good form, at the date of acquisition.

Paxon Corporation and Subsidiary Consolidated Balance Sheet January 1, 2019
(in millions)
Assets	Amount($)		Liabilities	Amount($)
Cash and receivables	1,880		Current liabilities	2500
Inventory	2,500		Long-term debt	2400
Long-term investments	250		Total liabilities	4900
Land	1070
Buildings and equipment, net	3300		Shareholders’ equity
Identifiable intangibles	110		Common stock, par value	500
			Additional paid-in capital	1200
			Retained earnings	2510
			Total equity	4210
Total assets	9,110		Total liabilities and equity	9,110