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

Western Corporation, the investment banking company, often has extra cash to invest. Suppose Western buys 1,240 shares of Excelsior, Inc., stock at $57 per share. Assume Western expects to hold the Excelsior stock for one month and then sell it. The purchase occurs on December 15, 2014. At December 31, the market price of a share of Excelsior stock is $58 per share.

1. What type of investment is this to Western? Give the reason for your answer.
2. Record Western’s purchase of the Excelsior stock on December 15 and the adjustment to market value on December 31.
3. Show how Western 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 Western did not intend to treat the Excelsior 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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