Consolidated Balance Sheet Working Paper, Bargain Purchase
On December 31, 2012, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $3.1 billion cash. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December 31, 2013, are shown below: Dr(Cr)
(in millions) Paxon Saxon Cash and receivables $4,960 $1,280 Inventory 3,616 1,504 Equity method investments — — Investment in Saxon 3,453 — Land 1,040 480 Buildings and equipment (net) 5,760 1,840 Current liabilities (3,232) (1,920) Long-term debt (8,000) (720) Common stock, par value (800) (160) Additional paid-in capital (1,920) (560) Retained earnings, January 1 (3,876) (1,352) Dividends 800 160 Sales revenue (48,000) (16,000) Equity in net income of Saxon (413) — Gain on sale of securities — (16) Gain on acquisition (100) — Cost of goods sold 41,600 12,800 Depreciation expense 480 64 Interest expense 400 40 Other operating expenses 4,232 2,560 Totals $0 $0
Several of Saxon's assets and liabilities had fair values different from their book values at the acquisition date, as follows: (in millions) Fair Value less Book Value Inventory (FIFO) $160 Equity method investments (sold in 2013) (80) Land 392 Buildings and equipment, net (20 years, straight-line) 480 Long-term debt (5 years, straight-line) (176)
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(a) Prepare a schedule to compute equity in net income of Saxon for 2013, and the December 31, 2013, balance for the Investment in Saxon, as reported on Paxon's books.
Instructions: Enter all answers in millions. Round all answers to the nearest million, when appropriate. Use negative signs with answers that reduce equity in net income and the investment account balance. Calculation of Equity in Net Income for 2013
(in millions) Saxon's reported net income for 2013 Answer Revaluation writeoffs: Inventory Answer Equity method investments Answer Buildings and equipment Answer Long-term debt Answer Equity in net income of Saxon Answer Calculation of Investment Balance, December 31, 2013 (in millions) Investment balance, December 31, 2012 Answer Equity in net income for 2013 Answer Dividends for 2013 Answer Investment balance, December 31, 2013 Answer
(b) Use a working paper to consolidate the trial balances of Paxon and Saxon at December 31, 2013.
Remember to use negative signs with your credit balance answers in the Consolidated Balances column. 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 $4,960 $1,280 Answer Inventory 3,616 1,504 (R) Answer Answer (O-1) Answer Equity method investments – – (O-2) Answer Answer (R) Answer Investment in Saxon 3,453 – Answer (C) Answer Answer (E) Answer (R) Land 1,040 480 (R) Answer Answer Buildings and equipment, net 5,760 1,840 (R) Answer Answer (O-3) Answer Current liabilities (3,232) (1,920) Answer Long-term debt (8,000) (720) (R) Answer Answer (O-4) Answer Common stock (800) (160) (E) Answer Answer Additional paid-in capital (1,920) (560) (E) Answer Answer Retained earnings, Jan. 1 (3,876) (1,352) (E) Answer Answer Dividends 800 160 Answer (C) Answer Sales revenue (48,000) (16,000) Answer Equity in net income of Saxon (413) (C) Answer Answer Gain on sale of securities (16) Answer (O-2) Answer Gain on acquisition (100) Answer Cost of goods sold 41,600 12,800 (O-1) Answer Answer Depreciation expense 480 64 (O-3) Answer Answer Interest expense 400 40 (O-4) Answer Answer Other operating expenses 4,232 2,560 – – Answer Total $0 $0 Answer Answer Answer
(c) Prepare the consolidated balance sheet and statement of income and retained earnings at December 31, 2013.
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 31,2013 (in millions) Sales Answer Cost of goods sold Answer Gross margin Answer Operating expenses: Depreciation expense Answer Interest expense Answer Other operating expenses Answer Answer Income before other gains Answer Gain on sale of securities Answer Gain on acquisition Answer Net income Answer
HINT: The answer for Retained Earnings is $4,877. Consolidated Balance Sheet
December 31, 2013 (in millions) Assets Cash and receivables Answer Inventory Answer Land Answer Buildings and equipment, net Answer Total assets Answer Liabilities and Stockholders' Equity Current liabilities Answer Long-term debt Answer Common stock Answer Additional paid-in capital Answer Retained earnings Answer Total liabilities and stockholders' equity Answer
Please provide an answer in every place that says Answer. Show work. Thank you!