QUESTION $2$

On April $1,20$X$1,$ Alpha Inc. acquired $500,000$ shares, representing $25\%$ of the

outstanding shares of Omega Corp at a price of $$2$ per share plus transaction costs of

$$10,000.$ The acquisition provided Alpha Inc. significant influence over Omega Corp.

At this date, Omega Corp$$s assets and liabilities equaled book values except for

inventory, which was overstated by $$40,000$ and equipment $($useful life remaining of $5\mathrm{.}5$

years$),$ which was understated by $$110,000.$ Omega$$s shareholders$$ equity consisted of

common shares, $$1,300,000$ and retained earnings, $2,450,000.$

On July $31,20$X$1,$ Omega Corp declared and paid a dividend of $$0\mathrm{.}40$ per share. Omega

Corp$$s net income from April $1$ to December $31,20$X$1$ was $$2,250,000.$

Assume that the Omega$$s inventory from April $1$ was sold by the year$-$end and that its

equipment had a remaining life of $5$ years on the date of acquisition.

On March $31,20$X$2,$ Alpha sold a patent with a book value of $$65,000$ to Omega for

$$125,000.$ The patent had a remaining life of $4$ years at the date of sale.

On July $31,20$X$2,$ Omega Corp declared and paid a dividend of $$0\mathrm{.}50$ per share. Omega

Corp$$s net income for $20$X$2$ was $$3,000,000.$

The income tax rate is $20\%$ for both companies.

REQUIRED:

a$)$ Assume that both Alpha and Omega prepare financial statements according to

ASPE. Determine how Alpha should report its investment in Omega Corp. Provide

specific references from the Handbook to support your recommendation. Discuss

any choices that may be available.

b$)$ Assume that both Alpha and Omega prepare financial statements according to

IFRS. Prepare the journal entries it would record for the years $20$X$1$ and $20$X$2.$ Show

supporting calculations.