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On January 1, 2016, Paxon Corporation acquired 80 percent of the outstanding common stock of the Saxon Company for $4 billion cash. The balance sheets of Paxon and Saxon, immediately prior to the combination, follow:

(in millions)		Paxon	Saxon
Assets
Cash and receivables		$11,440	$ 2,880
Inventory		6,800	3,600
Equity method investments		--	1,200
Land		2,600	700
Buildings and equipment, net		9,600	2,400
Total assets		$ 30,440	$10,780
Liabilities and stockholders' equity
Current liabilities		$ 6,000	$ 4,000
Long-term debt		8,000	1,600
Common stock, par value		2,000	400
Additional paid-in capital		4,800	1,400
Retained earnings		9,640	3,380
Total liabilities and stockholders' equity		$30,440	$10,780

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	$ 4,000
Equity method investments	1,000
Land	1,680
Buildings and equipment, net	3,600
Long-term debt	1,160

The estimated fair value of the noncontrolling interest in Saxon is $800 million.

a. Calculate the gain on acquisition and prepare Paxon's entry to record the acquisition (in millions)

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.

Acquisition cost		Answer
Fair value of noncontrolling interest		Answer
Total		Answer
Book value of Saxon	Answer
Revaluations:
Inventory	Answer
Equity method investments	Answer
Land	Answer
Buildings and equipment, net	Answer
Long-term debt	Answer
Fair value of identifiable net assets		Answer
Gain on acquisition		Answer

Paxon's acquisition entry (in millions):

General Journal
Description	Debit	Credit
AnswerInvestment in SaxonGoodwillGain on acquisitionNoncontrolling interestAcquisition cost	Answer	Answer
Cash	Answer	Answer
AnswerInvestment in SaxonGoodwillGain on acquisitionNoncontrolling interestAcquisition cost	Answer	Answer

b. Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at January 1, 2016.

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
Noncontrolling interest	--	--	(R)	Answer	Answer	(E)	Answer
Total	Answer	Answer		Answer	Answer		Answer

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

Do not use negative signs with any of your answers.

Enter answers in millions.

Consolidated Balance Sheet January 1, 2016
(in millions)
Assets
Cash and receivables	Answer
Inventory	Answer
Current assets	Answer
Equity method investments	Answer
Land	Answer
Buildings and equipment, net	Answer
Total assets	Answer
Liabilities and stockholders' equity
Current liabilities	Answer
Long-term debt	Answer
Total liabilities	Answer
Stockholders' equity
Paxon stockholders' equity:
Common stock	Answer
Additional paid-in capital	Answer
Retained earnings	Answer
Total Paxon stockholders' equity	Answer
Noncontrolling interest	Answer
Total stockholders' equity	Answer
Total liabilities and stockholders' equity	Answer

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