On January $1,2022,$ Paxon Corporation acquired all of the outstanding common stock of Saxon Company for $$2$ billion cash. Paxon uses the complete equity method to report its investment. The trial balances of Paxon and Saxon at December $31,2022,$ are shown below:

Dr$($Cr$)$

$($in millions$)$ Paxon Saxon

Cash and receivables $$3,050$ $$855$

Inventory $2,260530$

Equity method investments $----$

Investment in Saxon $2,635--$

Land $650300$

Buildings and equipment $($net$)3,6001,150$

Current liabilities $(2,020)(1,200)$

Long$-$term debt $(5,000)(450)$

Common stock, par value $(500)(50)$

Additional paid$-$in capital $(1,200)(200)$

Retained earnings, January $1(2,410)(600)$

Dividends $500250$

Sales revenue $(30,000)(12,000)$

Equity in net income of Saxon $(685)--$

Gain on sale of of equity method investments $--(150)$

Gain on acquisition $(200)--$

Cost of goods sold $26,0008,500$

Depreciation and amortization expense $30040$

Interest expense $25025$

Other operating expenses $2,7703,000$

Totals $$0$ $$0$

Several of Saxon$$s assets had fair values different from their book values at the acquisition date, as follows:

$($in millions$)$ Fair Value less Book Value

Inventory $($FIFO$)($sold in $2022)$ $$(400)$

Equity method investments $($sold in $2022)(100)$

Land $275$

Buildings and equipment, net $(20$ years, straight$-$line$)500$

In addition, Saxon had previously unrecorded identifiable intangible assets valued at $$875$ million, with a $5-$year life, straight$-$line.

Required

a$.$ Prepare a schedule to compute equity in net income of Saxon for $2022,$ and the December $31,2022$ balance for Investment in Saxon, as reported on Paxon$$s books.

Instructions:

Enter all answers in millions. Round all answers to the nearest million, when appropriate.

Use negative signs with answers that reduce equity in net income and the investment account balance.

Calculation of Equity in Net Income for $2022$

$($in millions$)$

Saxon's reported net income for $2022$ Answer

Revaluation write$-$offs:

Inventory Answer

Equity method investments Answer

Buildings and equipment Answer

Identifiable intangibles Answer

Equity in net income of Saxon Answer

Calculation of Investment Balance, December $31,2022$

$($in millions$)$

Investment balance, January $1,2022$ Answer

Equity in net income for $2022$ Answer

Dividends for $2022$ Answer

Investment balance, December $31,2022$ Answer

$($b$)$ Use a working paper to consolidate the trial balances of Paxon and Saxon at December $31,2022.$

Remember to use negative signs with your credit balance answers in the Consolidated Balances column.

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 $$3,050$ $$855$ Answer

Inventory $2,260530($O$-1)$ Answer

Answer

$($R$)$ Answer

Long$-$Term investments $----($R$)$ Answer

Answer

$($O$-2)$ Answer

Investment in Saxon $2,635--$ Answer

$($C$)$ Answer

Answer

$($E$)$

Answer

$($R$)$

Land $650300($R$)$ Answer

Answer

Buildings and equipment, net $3,6001,150($R$)$ Answer

Answer

$($O$-3)$ Answer

Identifiable intangibles $----($R$)$ Answer

Answer

$($O$-4)$ Answer

Current liabilities $(2,020)(1,200)$ Answer

Long$-$term debt $(5,000)(450)$ Answer

Common stock $(500)(50)($E$)$ Answer

Answer

Additional paid$-$in capital $(1,200)(200)($E$)$ Answer

Answer

Retained earnings, Jan. $1(2,410)(600)($E$)$ Answer

Answer

Dividends $500250$ Answer

$($C$)$ Answer

Sales revenue $(30,000)(12,000)$ Answer

Equity in net income of Saxon $(685)--($C$)$ Answer

Answer

Gain on sale of equity method investments $--(150)($O$-2)$ Answer

Answer

Gain on acquisition $(200)$ Answer

Cost of goods sold $26,0008,500$ Answer

$($O$-1)$ Answer

Depreciation and amortization expense $30040($O$-3)$ Answer

Answer

$($O$-4)$ Answer

Interest expense $25025$ Answer

Other operating expenses $2,7703,000--$ Answer

Total $$0$ $$0$ Answer

Answer

Answer

$($c$)$ Prepare the consolidated balance sheet at December $31,2022,$ and the consolidated income statement for $2022.$

INSTRUCTIONS: Do not use negative signs with any of your answers below for the balance sheet and income statement.

Consolidated Income Statement

Year Ended December $31,2022$

$($in millions$)$

Sales Answer

Cost of goods sold Answer

Gross margin Answer

Operating expenses:

Depreciation and amortization expense Answer

Interest expense Answer

Other operating expenses Answer

Answer

Income before other gains Answer

Gain on sale of equity method investments Answer

Gain on acquisition Answer

Net income Answer

Consolidated Balance Sheet

December $31,2022$

$($in millions$)$

Assets

Cash and receivables Answer

Inventory Answer

Land Answer

Buildings and equipment, net Answer

Identifiable intangibles Answer

Total assets Answer

Liabilities and Stockholders' Equity

Current liabilities Answer

Long$-$term debt Answer

Common stock Answer

Additional paid$-$in capital Answer

Retained earnings Answer

Total liabilities and shareholders' equity Answer