Consider the following information:
1. Giant Motors purchases 5% of Crane Tire Company’s common stock (one of its suppliers)
for \($30\) million on January 1, 2008.
2. Crane earned \($25\) million in net income for 2008.
3. Crane pays total dividends of \($15\) million during 2008.
4. The market value of Giant’s 5% investment in Crane is \($25\) million on December 31, 2008.
Required:
1. Assume that Giant's management considers its investment in Crane as a trading security.
At what amount should Giant report its investment in Crane in its 2008 balance sheet?
2. How would Giant’s investment in Crane affect its 2008 income statement?
3. In contrast to requirement 1, assume that Giant's management considers its investment as an available-for-sale security. At what amount should Giant report its investment in Crane in its 2008 balance sheet?
4. Using the facts presented in requirement 3, determine how, if at all, Giant’s investment in Crane would affect its 2008 income statement.