Question

Consolidated Balance Sheet Working Paper, Bargain Purchase

On December 31, 2012, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $2.88 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		$4,576	$1,152
Inventory		2,720	1,440
Equity method investments		--	480
Land		1,040	280
Buildings and equipment, net		3,840	960
Total assets		12,176	4,312
Liabilities and Shareholders' Equity
Current liabilities		2,400	1,600
Long-term debt		3,200	640
Common stock, par value		800	160
Additional paid-in capital		1,920	560
Retained earnings		3,856	1,352
Total liabilities and shareholders' equity		$12,176	$4,312

Several of Saxon's assets and liabilities 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	$1,600
Equity method investments	400
Land	672
Buildings and equipment, net	1,440
Long-term debt	464

(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 December 31, 2012.

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	(R)	Answer			Answer
Equity method investments		Answer			Answer	(R)	Answer
Investment in Saxon	Answer				Answer	(E)	Answer
					Answer	(R)
Land	Answer	Answer	(R)	Answer			Answer
Buildings and equipment, net	Answer	Answer	(R)	Answer			Answer
Current liabilities	Answer	Answer					Answer
Long-term debt	Answer	Answer	(R)	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 December 31, 2012
(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
			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

	Gain on Acquistion
	To calculate gain on acquisition we have to derive the value fair value of assets subtracting fair value of liabilities
		Amt in USD'M	Amt in USD ' M
	Purchase Price (a)		2880
	Assets
	Cash	1152
	Equity investment	400
	Land	672
	Building	1440
		3664
	Total Assets(b)		3664
	Total Liabilities
	Current Liability	1600
	Long Term debt	464
		2064
	Total Liabilities (c)		2064
	Net Assets (d) (a-b)	1600
	Hence Gain e= (d-a)	1280