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 $21,000.

(a) Assume that Davis made a $1,090,600 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 133,000 ordinary shares, with a market value of $8.20 per share, to Bagley for its net assets. Legal fees associated with issuing these shares amounted to $6,800 and were paid in cash. Davis had 153,000 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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BAGLEY INCORPORATED STATEMENT OF FINANCIAL POSITION At July 31, Year 4 Carrying Amount $ 913,000 Fair Value Plant and equipment-net $1,056,000 Patents 81,000 510,000 Current assets 458,000 $1,371,000 Ordinary shares Retained earnings $ 185,000 517,000 393,000 Long-term debt 419,000 Current liabilities 276,000 $1,371,000 276,000