Riverton Corporation, the investment banking company, often has extra cash to invest. Suppose Riverton buys 1,000 shares of Switzer, Inc., stock at $48 per share. Assume Riverton expects to hold the Switzer stock for one month and then sell it. The purchase occurs on December 15, 2016. At December 31, the market price of a share of Switzer stock is $58 per share.
Requirements
1. What type of investment is this to Riverton? Give the reason for your answer.
2. Record Riverton's purchase of the Switzer stock on December 15 and the adjustment to market value on December 31.
3. Show how Riverton 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, 2016.
4. Suppose Riverton did not intend to treat the Switzer 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? Follow Exhibit 5-2.