Chapter 17, Problem 2CA

To determine

Fair value: Fair value is a selling price which is agreed by the buyer and seller, it is also the estimate of the potential market price of good, service or asset.

Unrealized holding gains and losses: An unrealized gain is a profit recorded on paper results from the investment. It occurs when shares prices increase after investor purchases it, but an individual has to sell it, till the time it is not sold the amount of increase in share price is recorded as an unrealized gain.

An unrealized loss is a loss recorded on paper results from the investment. It occurs when shares prices decrease after investor purchases it, but an individual has to sell it, till the time it is not sold the amount of decrease in share price is recorded as an unrealized loss.

Equity securities: The equity securities are the securities which represents the claim on profits and the resources of an enterprise.

(a) To identify: To identify the justification is there for valuing equity securities at fair value and reporting the unrealized gain or loss as part of net income.

Given Information: All the information related to L Co. is provided in the question document.

To determine

(b) To determine: To determine the application of rule by L Company on December 31, 2017.

Given Information: All the information related to L Co. is provided in the question document.

To determine

(c) To determine: To determine the sale of the S Company stock is properly accounted by the L Company. Explain.

Given Information: All the information related to L Co. is provided in the question document.

To determine

(d) To determine: To determine the additional entries necessary for L Company at December 31, 2018, to reflect the facts on the financial statements in accordance with generally accepted accounting principles.

Given Information: All the information related to L Co. is provided in the question document.