Lancaster Corporation, an investment banking company, often has extra cash to invest. Suppose Lancaster buys 500 shares of Knight Corporation stock at $40 per share, representing less than 5% of Knight’s outstanding stock. Lancaster expects to hold the Knight stock for one month and then sell it. The purchase occurs on December 15, 2021. On December 31, the market price of one share of Knight stock is $47 per share. 

Requirements

1. What type of investment is this for Lancaster? Give the reason for your answer.

2. Record Lancaster’s purchase of the Knight stock on December 15 and the adjustment to market value on December 31.

3. Show how Lancaster 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, 2021.