Question - Kutcher Company purchased 500 shares of Timpico Company stock at $25 per share and 300 shares of Lustre Company stock at $96 per share during 2014. The market value per share at December 31, 2014 and 2015 was as follows:
2014 2015
Fair Market Value Fair Market Value
Timpico Co. $28 $30
Lustre Co. 89 94
Kutcher Company intended to hold both stocks for several years. Assume that the two stock holdings are the only securities in their investment portfolio.
Required:
1. How would Kutcher classify this stock? (Trading, Available-for-sale, Held-to-Maturity, Equity security or other?)
2. Prepare the entries necessary to adjust the securities to market value at the end of 2014 and 2015. (Be sure to specify whether your unrealized holding gains/losses are reported in income or equity).
3. Assume that in 2016, Kutcher sold half of its shares of the Timpico Company stock for $35 per share plus $300 in brokerage selling fees. Prepare the journal entry to record the sale of the Timpico Company stock.
4. What other adjustments would Kutcher need to make to its financials to account for the sale of the Timpico stock?
5. Assume that Kutcher had instead elected to use the fair value option to account for these stocks. Where would it report unrealized holding gains/losses each period?