The statement of financial position of Bagley Incorporated as at
The statement of financial position of Bagley Incorporated as at July 31, Year 4, is as follows:
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 $19,500.
Required:
(a) Assume that Davis made a $1,040,000 cash payment to Bagley for its net assets. Prepare the journal entries in the accounting records of Davis to record the business combination.
(b) Assume that Davis issued 130,000 ordinary shares, with a market value of $8 per share, to Bagley for its net assets. Legal fees associated with issuing these shares amounted to $6,500 and were paid in cash. Davis had 150,000 shares outstanding prior to the takeover.
(i) Prepare the journal entries in the records of Davis to record the business combination.
(ii) Prepare the statement of financial position of Bagley immediately after the sale.
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