Ronald Company purchased 5% of the equity securities of another company for $100,000. At the end of the year, the fair value of the securities was $105,000. How should the investment be reported in the year-end financial statements?

Multiple Choice

• The investment in equity securities would be reported in the balance sheet at its $100,000 cost.

• The investment in equity securities would be reported in the balance sheet at its $100,000 purchase cost; an unrealized holding gain of $5,000 would be reported in net income.

• An unrealized holding gain of $5,000 would be reported as a separate component of stockholders equity.

• The investment in equity securities would be reported in the balance sheet at its $105,000 fair value; an unrealized holding gain of $5,000 would be reported in net income.