Bagley Incorporateds statement of financial position as at July 31, Year 4, is as follows: BAGLEY INCORPORATED
Question:
Bagley Incorporated’s statement of financial position as at July 31, Year 4, is as follows:
BAGLEY INCORPORATED STATEMENT OF FINANCIAL POSITION At July 31, Year 4 | |||||
Carrying Amount | Fair Value | ||||
Plant and equipment (net) | $ | 923,000 | $ | 1,066,000 | |
Patents | - | 91,000 | |||
Current assets | 468,000 | 520,000 | |||
$ | 1,391,000 | ||||
Ordinary shares | $ | 195,000 | |||
Retained earnings | 507,000 | ||||
Long-term debt | 403,000 | 429,000 | |||
Current liabilities | 286,000 | 286,000 | |||
$ | 1,391,000 | ||||
On August 1, Year 4, the directors of Bagley considered a takeover offer from Davis Inc., in which the corporation would sell all of its assets and liabilities. Davis’s costs of investigation and drawing up the merger agreement would amount to $26,000.
Required:
(a) Assume that Davis made a $1,315,600 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 143,000 ordinary shares, with a market value of $9.20 per share, to Bagley for its net assets. Legal fees associated with issuing these shares amounted to $7,800 and were paid in cash. Davis had 163,000 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.
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
8th edition
Authors: Hilton Murray, Herauf Darrell