On 1/1/20, Grape Company purchased 20% of Juice Company’s outstanding stock for $1,000,000. At the date of purchase, Juice Company’s total common stockholders’ equity was $5,000,000. Assume no fair value/book value difference for Juice Company stockholders’ equity exists at 1/1/20.
Juice Company paid 0,000 in dividends during 2020 and reported net income of $750,000. Juice’s common stock is selling for $6,000,000 at the end of 2020.
a. If Grape’s intent for the purchase is to invest excess cash for a shorter period of time,
1. What would be included as the total dollar amount of Investment In Juice on Grape’s balance sheet at 12/31/20?
2.What would be the dollar amount included in Grape’s stockholders’ equity related to Grape’s Investment In Juice on 12/31/20?
b. If Grape’s intent for the purchase is to be able to influence Juice financing and operating decisions since it can now have a seat on Juice’s Board of Directors,
1. What would be included as the total dollar amount of Grape’s Investment In Juice asset on Grape’s balance sheet 12/31/20?
2. What dollar amount would be included in Grape’s stockholders’ equity related to this Investment in Juice on 12/31/20?
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