Question

National Financial​ Services, Inc. invested​ $21,000 to acquire​ 6,250 shares of Stonebridge​ Investments, Inc. on March​ 15, 2015. This investment represents less than​ 20% of the​ investee's voting stock. On May​ 7, 2018, National Financial​ Services, Inc. sells​ 3,000 shares for​ $19,250. When the journal entry to record the sale is​ made, ________.

A.

Loss on Disposal will be debited

B.

Equity Investments will be debited

C.

Gain on Disposal will be credited

D.

Cash will be credited.

2

​Short-term investments​ ________.

A.

are debt and equity securities that the investor expects to hold for more than a year

B.

are investments in debt securities or equity securities in which the investor holds less than 50 percent of the voting stock and that the investor plans to sell two years after the balance sheet date

C.

are investments in debt securities that the investor intends to hold until maturity

D.

are investments in debt and equity securities that are readily marketable and that the investor intends to convert to cash within one year

Answer 1

1) National finance services Inc invested $21000 6250 shares $21000/6250= 3.36

dr equity investment $21000

cr cash $21000

at the time of disposal , national financial service sell 3000 shares for $19250, bought 3000 shares for 3.36=$10080.

dr cash $19250

cr gain on disposal $9170

cr equity investments $10080

the answer for question 1 is option C 'gain on disposal is credited'  

not A because it is not loss on disposal

not B because we only debit equity investments, if we invest in shares not while disposing

not D because cash would be debited not credited.

2) short term investments are investments in debt and equity securities that are readily marketable and that the investor intends to convert to cash within one year

option d is the answer