On January 1, 2021, Grasper Inc. purchased 20% (20,000 shares) of the outstanding common shares of Bella Inc. for $ 500,000. On August 31^st, Bella's year end, the company reported profits of $ 355,000 and paid total dividends of $ 62,000. Bella Inc. shares were trading at $ 26.50 per share on December 31, 2021. Grasper has a December 31 year end.
Instructions
a) Assuming that 20% ownership does not give Grasper significant influence over Bella, and that the company chooses to report gains/losses resulting from the fair value adjustments in other comprehensive income:
i) Record the purchase of the shares.
ii) Prepare any other entries that Grasper will record during the year ended December 31, 2021 related to its investment in Bella.
iii) Determine what amounts will be reported in Grasper's December 31, 2021 balance sheet, income statement and/or comprehensive statement related to its investment in Bella.
b) Assuming that 20% ownership provides Grasper with significant influence over Bella:
i) Record the purchase of the shares.
ii) Prepare any other entries that Grasper will record during the year ended December 31, 2021 related to its investment in Bella.
iii) Determine what amounts will be reported in Grasper's December 31, 2021 balance sheet and income statement related to its investment in Bella.

Question

Quizplus · Accepted Answer

The Answer of On January 1, 2021, Grasper Inc. purchased 20% (20,000 shares) of the outstanding common shares of Bella Inc. for $ 500,000. On August 31^st, Bella's year end, the company reported profits of $ 355,000 and paid total dividends of $ 62,000. Bella Inc. shares were trading at $ 26.50 per share on December 31, 2021. Grasper has a December 31 year end. Instructions a) Assuming that 20% ownership does not give Grasper significant influence over Bella, and that the company chooses to report gains/losses resulting from the fair value adjustments in other comprehensive income: i) Record the purchase of the shares. ii) Prepare any other entries that Grasper will record during the year ended December 31, 2021 related to its investment in Bella. iii) Determine what amounts will be reported in Grasper's December 31, 2021 balance sheet, income statement and/or comprehensive statement related to its investment in Bella. b) Assuming that 20% ownership provides Grasper with significant influence over Bella: i) Record the purchase of the shares. ii) Prepare any other entries that Grasper will record during the year ended December 31, 2021 related to its investment in Bella. iii) Determine what amounts will be reported in Grasper's December 31, 2021 balance sheet and income statement related to its investment in Bella.