what justification is there for valuing available for sale securities at fair value 585593

(Equity Securities) Lexington Co. has the following available for sale securities outstanding on December 31, 2012 (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 2013, 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, 2013, was: Greenspan Corp. stock $19,900; Tinkers Company stock $20,500.

Instructions

(a) What justification is there for valuing available for sale securities at fair value and reporting the unrealized gain or loss as part of stockholders’ equity?

(b) How should Lexington Company apply this rule on December 31, 2012? Explain.

(c) Did Lexington Company properly account for the sale of the Summerset Company stock? Explain.

(d) Are there any additional entries necessary for Lexington Company at December 31, 2013, to reflect the facts on the financial statements in accordance with generally accepted accounting principles? Explain.