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Bagley Incorporated’s statement of financial position as at July 31, Year 4, is as follows: BAGLEY...

Bagley Incorporated’s statement of financial position as at July 31, Year 4, is as follows:

BAGLEY INCORPORATED

BAGLEY INCORPORATED
STATEMENT OF FINANCIAL POSITION
At July 31, Year 4
Carrying
Amount		 Fair
Value
Plant and equipment (net) $ 925,000 $ 1,068,000
Patents - 93,000
Current assets 470,000 522,000
$ 1,395,000
Ordinary shares $ 197,000
Retained earnings 505,000
Long-term debt 405,000 431,000
Current liabilities 288,000 288,000
$ 1,395,000

On August 1, Year 4, the directors of Bagley considered a takeover offer from Davis Inc., whereby the corporation would sell all of its assets and liabilities. Davis’s costs of investigation and drawing up the merger agreement would amount to $27,000.

Required:

(a) Assume that Davis made a $1,363,000 cash payment to Bagley for its net assets. Prepare the journal entries in the accounting records of Davis to record the business combination. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

(b) Assume that Davis issued 145,000 ordinary shares, with a market value of $9.40 per share, to Bagley for its net assets. Legal fees associated with issuing these shares amounted to $8,000 and were paid in cash. Davis had 165,000 shares outstanding prior to the takeover.

(i) Prepare the journal entries in the records of Davis to record the business combination. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

(ii) Prepare the statement of financial position of Bagley immediately after the sale.

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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