Question

a) prepare a schedule computing the gain on acquisition

b) prepare a schedule calculating the equity in net income of Saxon for 2019, reported on Paxons books, and the noncontrolling interest in net income for 2019, to be reported on the consolidated income statement for 2019

c) prepare a working paper to consolidate the trial balanaces of Paxon and Saxon at December 31, 2019

Required a. Prepare the acquisition entry made b. Prepare the working paper eliminating B Consolidation Working Paper One Year After Acquisition, Bargain Purch lated P4.5) On January 1, 2019, Paxon Corporation acquired 90 percent of the oee the working paper eliminating entries to consolid ase at the date of acquisition. mon stock of Saxon Company for $1,520 million cash. The fair value of the 10 percen interest in Saxon was estimated to be $180 million at the date of acquisition. Paxon uses acand Saxon at December 31,201 equity method to report its investment. The trial balances of Paxon and Saxon at Decem appear below: Dr (Cr) Paxon Saxon (in millions) Cash and receivables. Equity method investments Land $3,370 $ 800 940 2,260 1,942.2 650 3,600 300 1,150 Buildings and equipment, net 2,020) (1.200 (500) (1,200) (2,410) 500 (100 (350) 845) 100 Common stock, par value Dividends (30,000) (10,000) (412.2) Gain on acquisition. (100) (10) 8,000 Cost of goods sold. 26,000 300 250 2,770 Interest expense. Other operating expenses Totals . 25 1,600 Several of Saxon's assets had fair values different from their book values at the acquisitiond date, as (in millions) Fair value- Book value $(100) (50) 245 300 Equity method investments (sold in Buildings and equipment, net (20 years, straight-line). . . . . . . . . . . … … In addition, Saxon had previously unrecorded identifiable intangible assets valued at $110 million, with a 5-year life, straight-line.

Answer 1

Solution – All Amounts are in Millions and Currency in US $

a)

	Amount	Currency
	millions	$
Acquisition Cost		1520
Fair Value of Non Controlling Interest		180
(A)		1700
Book Value:
Common Stock of Saxon	100
Additional Paid in Capital	350
Retained earnings	845
(B)	1295
Excess of Fair value over Book Value:
Inventory	-100
Investments	-50
Land	245
Buildings and Equipment	300
Intangible Assets	110
('C)	505
Fair Value of Assets(D=B+C)		1800
Gain on Acquisition(E=A-D)		-100

b)

	Total	Equity In NI	NCI in NI
Saxton reported Net Income	345	310.5	34.5
(10000+10-8000-40-25-1600=345)
Revaluation Writeoffs:
Inventory	100	90	10
Investments	50	45	5
Buildings and Equipment(300/20)	-15	-13.5	-1.5
Intangible Assets(110/5)	-22	-19.8	-2.2
	458	412.2	45.8

c)

	Consolidation Working paper
		Trial Balance From books		Eliminations
		Paxon	Saxon	Dr	Cr	Consolidated Balance
1	Cash and Receivables	3370	800			4170
2	Inventory	2260	940	100	100	3200
3	Marketable Securities			50	50	0
4	Investment in Saxon	1942.2			1942.2	0
5	Land	650	300	245		1195
6	Buildings and Equipments	3600	1150	300	15	5035
7	Intangible Assets			110	22	88
8	Current Liabilities	-2020	-1200			-3220
9	Long Term Debt	-5000	-450			-5450
10	Common stock	-500	-100	100		-500
11	Additional paid in Capital	-1200	-350	350		-1200
12	Retained earnings, Jan. 1	-2410	-845	845		-2410
13	Noncontrolling interest				215.8	-215.8
14	Dividends	500	100		100	500
15	Sales revenue	-30000	-10000			-40000
16	Equity in income of Saxon	-412.2		412.2		0
17	Gain on sale of securities		-10		50	-60
18	Gain on acquisition	-100				-100
19	Cost of goods sold	26000	8000		100	33900
20	Depreciation expense	300	40	37		377
21	Interest expense	250	25			275
22	Other operating expenses	2770	1600			4370
23	Noncontrolling interest in NI			45.8		45.8
		0	0	2595	2595	0

Working Notes:- As per the no mentioned before each item in Consolidated working Paper

2. Inventory Revalued Credited since it is already sold COGS is credited and Inventory is debited

3. Marketable Securities revalued hence credited but since they are already sold before their fair value is down gain on sale is credited

4. 90% of Revalued Assets + Equity in Income of Saxon - Dividend from Saxon(1800*90%+412.2-90)

5. Land revalued

6. Building and Equipment Revalued and Depreciation charged.

7. Intangible Assets identified and Amortisation Charged.

14. 90 for Paxon and 10 for NCI.

16. Adjusted with investment in Saxon and Dividend from Saxon

17. See note on Marketable Securities

19. See note on Inventory

20. Depreciation and Amortisation of buiding equipments and Intangible Assets

23. As Calculated