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Unrealized Gain on Investment

In: Business and Management

Submitted By DeeRue
Words 263
Pages 2
E5-21A
(Learning Objective 1: Apply GAAP for short-term investments) Eastern Corporation, the investment banking company, often has extra cash to invest. Suppose Eastern buys 1,000 shares of Dream, Inc., stock at $57 per share. Assume Eastern expects to hold the Dream stock for one month and then sell it. The purchase occurs on December 15, 2012. At December 31, the market price of a share of Dream stock is $58 per share.
▶ Requirements
• 1. What type of investment is this to Eastern? Give the reason for your answer.
This is a short-term investment that was held for one month then sold for fair market value.
• 2. Record Eastern’s purchase of the Dream stock on December 15 and the adjustment to market value on December 31.
2012
December 15 Short-term Investment in Dream Inc. stock Inc. (1,000x$57) $57,000 Cash $57,000 Purchased investment
December 31 Investment in Dream Stock Inc. $1,000 Unrealized Gain on Investment $1,000
Adjusted investment to fair value

Investment in Dream Stock Inc. Unrealized Gain on Investment
57,000 | 1,000 |
$58,000

| | 1,0000
3. Show how Eastern 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, 2012.
Eastern Corporation
December 31, 2012
Balance Sheet Income Statement
Current Assets…………….. Revenues…………………. $XXX Cash……………….. $XXX Expenses…………………. $XXX
Short term investment at Other revenue, gains and losses:
Fair value…………………… $58,000 Interest Revenue……… $XXX
Accounts Receivable………. $XXX Dividend revenue……….. $XXX Investment………………… $1,000 Net Income………………..

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