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.