Question
Apply GAAP for short-term investments. E5-21A (Learning Objective 1: Apply GAAP for short-term investments) Eastern Corporation, the investment banking company, often has extra cash to
Apply GAAP for short-term investments. 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. 2. Record Easterns purchase of the Dream stock on December 15 and the adjustment to market value on December 31. 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.
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