Investee’s Ownership in Investor’s Stock Which Has Appreciated in Value Penron (publicly owned) owns (1) 25% of the common stock of a Talrex and (2) 100% of the common stock of Senron. Each investee company purchased common stock of Penron at the beginning of the cur¬

rent year. By year-end, each investee company had a $100,000 unrealized gain (reported in earn¬

ings) as a result of the increase in the market price of Penron’s common stock during the year. Pen¬ ron uses the equity method for both of these investments.

1 How should the 25%-owned entity’s gain impact Penron’s income statement for the year? (The solution manual explains what Enron did in this situation.)

2 How should the 100%-owned subsidiary’s gain be reported in consolidation?