Unrealized gain or loss as part of stockholders equity

Assignment Help Financial Accounting

Reference no: EM13827164

CA17-2 (Equity Securities) Lexington Co. has the following available-for-sale securities outstanding on December 31, 2014 (its first year of operations).

Cost, Fair Value (respectively)

Greenspan Corp. Stock $20,000 $19,000

Summerset Company Stock 9,500 8,800

Tinkers Company Stock 20,000 20,600

Totals $49,500 $48,400

During 2015, Summerset Company stock was sold for $9,200, the difference between the $9,200 and the “fair value” of $8,800 being recorded as a “Gain on Sale of Investments.” The market price of the stock on

December 31, 2015, was Greenspan Corp. stock $19,900; Tinkers Company stock $20,500.

Instructions

(a) What justification is there for valuing available-for-sale securities at fair value and reporting the unrealized gain or loss as part of stockholders’ equity?

(b) How should Lexington Company apply this rule on December 31, 2014? Explain and prepare journal entry.

(d) Are there any additional entries necessary for Lexington Company at December 31, 2015, to reflect the facts on the financial statements in accordance with generally accepted accounting principles? Explain. (AICPA adapted)

Reference no: EM13827164

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