Port Corporation is a parent, having purchased 80% of Sand Company's common stock at par value for $800,000. Sand Company is in financial difficulty. The parent granted an unsecured loan of $400,000 to the subsidiary. An accounting statement of affairs for Sand Company shows a dividend of 40%. Port Corporation can expect to receive payment for its investment in Sand Company of approximately ____.

Question

Quizplus · Accepted Answer

Since Sand Company is in financial difficulty and the statement of affairs shows a dividend of 40%, Port Corporation will only receive 40% of its unsecured loan, which is $160,000. However, the investment in common stock is considered equity and will not receive any payment in a liquidation scenario. Therefore, the expected payment for the investment in Sand Company is $0.

Port Corporation Is a Parent, Having Purchased 80% of Sand