Analyzing and Interpreting Equity Method Investments

Stober Company purchases an investment in Lang Company at a purchase price of $1.2 million cash, representing 30% of the book value of Lang. During the year, Lang reports net income of $110,000 and pays cash dividends of $50,000. At the end of the year, the fair value of Stober's investment is $1.25 million. a. At what amount is the investment reported on Stober's balance sheet at year-end? $Answer b. What amount of income from investments does Stober report? $Answer c. Stober's $200,000 unrealized gain in investment fair value (choose one): (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 other comprehensive income Answer(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 other comprehensive income d. Prepare journal entries to record the transactions and events above.

General Journal
	Description	Debit	Credit
1.	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	To purchase stock in Lang Company.
2.	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	To recognize share of Lang income.
3.	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	AnswerCashInvestment in Lang CompanyInvestment Income	Answer	Answer
	To record dividend received.

e. Post the journal entries from d to their respective T-accounts.

Cash (A)
1.	Answer	Answer
2.	Answer	Answer
3.	Answer	Answer

Investment Income (R)
1.	Answer	Answer
2.	Answer	Answer
3.	Answer	Answer

Investment in Lang Company (A)
1.	Answer	Answer
2.	Answer	Answer
3.	Answer	Answer

f. Record each of the transactions from d in the financial statement effects template.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital
Purchase stock in Lang Company	$Answer	+	$Answer	=	$Answer	+	$Answer	+	$Answer
Recognize share of Lang income	Answer	+	Answer	=	Answer	+	Answer	+	Answer
Receive dividend from Lang	Answer	+	Answer	=	Answer	+	Answer	+	Answer

Income Statement
	Revenues	-	Expenses	=	Net Income
	$Answer	-	$Answer	=	$Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answer