Allegiance Inc. (Allegiance) prepares its financial statements in accordance with IFRS. Allegiance acquired 30% of the outstanding common voting shares of Inspiration Ltd. (Inspiration) on December 31, 2020, for $500,000. Allegiance accounts for the investment in Inspiration as a significant influence investment.

 The statement of financial position of Inspiration and the fair values of its identifiable assets and liabilities at the acquisition date are as follows:

 Inspiration Ltd.

Statement of financial position As at December 31, 2020

 

	Carrying amounts	Fair values
Cash	$    100,000	$    100,000
Accounts receivable	490,000	475,000
Inventories	450,000	515,000
Current assets	1,040,000	1,090,000
Equipment (net)	725,000	775,000
Indefinite-life intangibles	—	200,000
Total assets	$1,765,000	$2,065,000
Accounts payables and accruals	$    480,000	$    480,000
Bonds	300,000	290,000
Total liabilities Shareholders’ equity Common shares	780,000   100,000	770,000
Retained earnings	885,000
Total liabilities and equity	$1,765,000
Value of net assets	$    985,000	$1,295,000
Other information:

• The fiscal year-end of both companies is December 31.
• Inspiration’s collectible accounts receivable and inventory as at December 31, 2020, were all converted to cash during 2021.
• At the end of the December 31, 2021, fiscal year-end, Inspiration still had the equipment it owned on the acquisition date. The equipment had an estimated remaining useful life of four years on the acquisition date with NO residual value.

Both Allegiance and Inspiration use the straight-line method to calculate depreciation.

• Inspiration’s bonds fully matured on December 31, 2021, and were paid off at that time.
• During the 2021 fiscal year-end, Inspiration declared and paid a $40,000 dividend to its common shareholders.
• Inspiration incurred a net loss of $10,000 for the fiscal year ended December 31, 2021.

Required:

Calculate the value of goodwill on Allegiance’s purchase of the Inspiration shares as of the acquisition date.

1. Calculate the income (or loss) earned by Allegiance on its investment in Inspiration for the fiscal year ended December 31, 2021.
2. Prepare the journal entries to record Allegiance’s receipt of dividends from Inspiration, and the income or loss relating to its investment in Inspiration for the year ended December 31, 2021.