Question: On January 1, 2015, Alpha Co., a publicly traded company, purchased 10,000 shares of Omega Inc. for $108,000. Omega has 50,000 shares issued and outstanding.
On January 1, 2015, Alpha Co., a publicly traded company, purchased 10,000 shares of Omega Inc. for $108,000. Omega has 50,000 shares issued and outstanding. While Alpha purchased these shares for strategic purposes, Omega has blocked all attempts made by Alpha to gain representation on the board of directors. Alpha has been seriously considering selling the shares since they clearly cannot be used to influence Omega. During the next two years, the following information was available for Omega.
Year End Net income (loss) Dividends declared Share price
2015 $35,000 $20,000 $15.50
2016 $15,000 $20,000 $13.25
Alpha sold all of its 10,000 shares in Omega on December 31, 2016.
Required:
- What method should Alpha Co. use to account for its investment in Omega Inc.? Justify your answer using the information provided above.
Assuming Alpha Co. classifies this investment as FVTPL, prepare the journal entries for the two years related to this investment. 1/2 Mark will be deducted for each unnecessary journal entry included in the solution.
Date | Debit | Credit | |
- Assuming Alpha Co. classifies this investment as FVTOCI, prepare the journal entries for the two years related to this investment. 1/2 Mark will be deducted for each unnecessary journal entry included in the solution.
Date | Debit | Credit | |
- Assuming Alpha Co. classifies this investment as Equity method, prepare the journal entries for the two years related to this investment. 1/2 Mark will be deducted for each unnecessary journal entry included in the
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A Based on the information provided it seems that Alpha Co purchased the 10000 shares of Omega Inc for strategic purposes ie to gain representation on ... View full answer
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