Stober Company purchases an investment in Lang Company at a purchase price of ($ 1) million cash.

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Stober Company purchases an investment in Lang Company at a purchase price of \(\$ 1\) million cash. representing \(30 \%\) of the book value of Lang. During the year, Lang reports net income of \(\$ 100,000\) and pays cash dividends of \(\$ 40,000\). At the end of the year, the market value of Stober's investment is \(\$ 1.2\) million.

a. What amount does Stober report on its balance sheet for its investment in Lang?

b. What amount of income from investments does Stober report? Explain.

c. Stober's \(\$ 200,000\) unrealized gain in the market value of the Lang investment (choose one and explain):
(1) Is not reflected on either its income statement or balance sheet.
(2) Is reported in its current income.
(3) Is reported on its balance sheet only.
(4) Is reported in its accumulated other comprehensive income.

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Financial Accounting For MBAs

ISBN: 9781934319345

4th Edition

Authors: Peter D. Easton, John J. Wild, Robert F. Halsey, Mary Lea McAnally

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