Lancaster Corporation, an investment banking company, often has extra cash to invest. Suppose Lancaster buys500 shares of Knight Corporation stock at $40 per share, representing less than 5% of Knight’soutstanding stock. Lancaster expects to hold the Knight stock for one month and then sell it.The purchase occurs on December 15, 2018. On December 31, the market price of one share ofKnight stock is $47 per share.Requirements1. 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 tomarket value on December 31.3. Show how Lancaster would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018
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, 2018. 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
any gain or loss on its income statement for the year ended December 31, 2018
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