Taylor Company made a long-term investment in 100,000 shares of Summit Company at $50 per share. This

Question:

Taylor Company made a long-term investment in 100,000 shares of Summit Company at $50 per share. This investment represented less than 1% of the outstanding shares of Summit. By yearend, the share price climbed to $75 per share for an appreciation of $2,500,000. Near the end of the year, the CEO, Bud Greene approached the CFO, Sasha Whitman, wishing to recognize the $2.5 million appreciation as a gain on the income statement. The CEO reasoned that the fair value of the Summit investment should be disclosed on the with the associated appreciation in share price recognized on the income statement. How should Sasha respond to the CEO’s assertion?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...