Question: Spring Corporation the investment banking company often has extra cash

Spring Corporation, the investment banking company, often has extra cash to invest. Suppose Spring buys 825 shares of TPG, Inc., stock at $59 per share. Assume Spring expects to hold the TPG stock for one month and then sell it. Te purchase occurs on December 15, 2014. At December 31, the market price of a share of TPG stock is $62 per share.

1. What type of investment is this to Spring? Give the reason for your answer.
2. Record Spring’s purchase of the TPG stock on December 15 and the adjustment to market value on December 31.
3. Show how Spring would report this investment on its balance sheet at December 31 and any gain or loss on its income statement for the year ended December 31, 2014.
4. Suppose Spring did not intend to treat the TPG stock as a trading security, but still intended to treat it as a short-term investment. How do your answers for parts 1–3 change?

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  • CreatedJuly 25, 2014
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