Consolidation Working Paper One Year after Acquisition, Bargain Purchase
On December 31, 2012, Paxon Corporation acquired 90 percent of the outstanding common stock of Saxon Company for $1,944,000,000 cash. The fair value of the 10 percent noncontrolling interest in Saxon was estimated to be $216,000,000 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, 2013, appear below: Dr(Cr) (in millions) Paxon Saxon Cash and receivables $3,924 $960 Inventory 2,712 1,128 Equity method investments — — Investment in Saxon 2,354.64 — Land 780 360 Buildings and equipment, net 4,320 1,380 Current liabilities (2,424) (1,440) Long-term debt (6,000) (540) Common stock, par value (600) (120) Additional paid-in capital (1,440) (420) Retained earnings, January 1 (3,132) (1,014) Dividends 600 120 Sales revenue (36,000) (12,000) Equity in net income of Saxon (278.64) — Gain on sale of securities — (12) Gain on acquisition (100) — Cost of goods sold 31,200 9,600 Depreciation expense 360 48 Interest expense 300 30 Other operating expenses 3,324 1,920 Total $0 $0
Several of Saxon's assets and liabilities had fair values different from their book values at the acquisition date, as follows:
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(in millions) Fair Value less
Book Value Inventory (FIFO) $120 Equity method investments (sold in 2013) (60) Land 294 Buildings and equipment, net (20 years, straight-line) 360 Long-term debt (5 years, straight-line) (132)
(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.
(b) Prepare a schedule calculating the equity in net income of Saxon for 2013, reported on Paxon's books, and the noncontrolling interest in income for 2013, to be reported on the consolidated income statement for 2013. Use negative signs with answers that reduce net income amounts. Enter answers in millions, using decimal places, if appropriate.
(c) Prepare 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. Enter answers in millions, using decimal places, if appropriate.
please show all work and do all parts. thank you so much :))) Calculation of gain on acquisition Acquisition cost Fair value of noncontrolling interest Book value Excess of fair value over book value: Inventory Equity method investments Land Building and equipment Long-term debt (discount) Gain on acquisition Noncontrolling Equity in NI interest in NI Total (in millions) Saxon's reported net income for 2013 $ Revaluation writeoffs Inventory Equity method investments Buildings and equipment Long-term debt Consolidation Working Paper Accounts Taken from Books Eliminations Paxon Dr (Cr) Consolidated Balances Dr (Cr) Debit Credit $3,924 (in millions) Cash and receivables Inventory Equity method investments Investment in Saxon Saxon Dr (Cr) $960 1,128 (R) – (0-2) 2,712 2,354.64 (R) (R) Land Buildings and equipment, net Current liabilities Long-term debt Common stock Additional paid-in capital Retained earnings, Jan. 1 Noncontrolling interest 780 4,320 (2,424) (6,000) (600) (1,440) (3,132) 360 1,380 (1,440) (540) (120) (420) (1,014) (R) (E) (E) (E) Dividends 600 120 (12,000) (36,000) (278.64) (100) Sales revenue Equity in net income of Saxon Gain on acquisition Gain on sale of securities Cost of goods sold Depreciation expense Interest expense Other operating expenses Noncontrolling interest in NI 31,200 360 300 3,324 (12) 9,600 (0-1) 48 (0-3) 30 (0-4) 1,920 $0