Reference no: EM133104652

Question - On December 31, 2012, Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $1.8 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	$3,432	$864
Inventory	2,040	1,080
Equity method investments	--	360
Land	780	210
Buildings and equipment, net	2,880	720
Total assets	9,132	3,234
Liabilities and Shareholders' Equity
Current liabilities	1,800	1,200
Long-term debt	2,400	480
Common stock, par value	600	120
Additional paid-in capital	1,440	420
Retained earnings	2,892	1,014
Total liabilities and shareholders' equity	$9,132	$3,234

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	$1,200
Equity method investments	300
Land	504
Buildings and equipment, net	1,080
Long-term debt	348

Required -

(a) Calculate the gain on acquisition in this bargain purchase.

(b) Prepare a working paper to consolidate the balance sheets of Paxon and Saxon at December 31, 2012.

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