Lexington Co. has the following securities outstanding on December 31, 2017 (its first year of operations).   Cost Fair Value Greenspan Corp. stock $20,000 $19,000 Summerset Company stock 9,500 8,800 Tinkers Company stock 20,000 20,600   $49,500 $48,400 During 2018, Summerset Company stock was sold for $9,200, the difference between the $9,200 and the “fair value” of $8,800 being recorded as a “Gain on Sale of Investments.” The market price of the stock on December 31, 2018, was Greenspan Corp. stock $19,900; Tinkers Company stock $20,500.Instructions(a) What justification is there for valuing equity securities at fair value and reporting the unrealized gain or loss as part of net income?(b) How should Lexington Co. report this information in its financial statements at December 31, 2017? Explain.(c) Did Lexington Co. properly account for the sale of the Summerset Company stock? Explain.(d) Are there any additional entries necessary for Lexington Co. at December 31, 2018, to reflect the facts on the financial statements in accordance with generally accepted accounting principles? Explain.

Question

Lexington Co. has the following securities outstanding on December 31, 2017 (its first year of operations).

  Cost Fair Value
Greenspan Corp. stock $20,000 $19,000
Summerset Company stock 9,500 8,800
Tinkers Company stock 20,000 20,600
  $49,500 $48,400

During 2018, Summerset Company stock was sold for $9,200, the difference between the $9,200 and the “fair value” of $8,800 being recorded as a “Gain on Sale of Investments.” The market price of the stock on December 31, 2018, was Greenspan Corp. stock $19,900; Tinkers Company stock $20,500.
Instructions
(a) What justification is there for valuing equity securities at fair value and reporting the unrealized gain or loss as part of net income?
(b) How should Lexington Co. report this information in its financial statements at December 31, 2017? Explain.
(c) Did Lexington Co. properly account for the sale of the Summerset Company stock? Explain.
(d) Are there any additional entries necessary for Lexington Co. at December 31, 2018, to reflect the facts on the financial statements in accordance with generally accepted accounting principles? Explain.

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