Question

On March 24, 2018, Ted Company purchased 10,000 shares of Maggie Inc. stock for $15 per share and paid a $1,500 commission fee. At the time of the purchase, Maggie Inc. had 100,000 shares outstanding. On July 31, 2018, Maggie declared and paid a dividend of $1.50 per share. The closing price on Maggie’s stock on December 31, 2018, was $13.50 per share. Ted sold all 10,000 shares of its Maggie’s Inc. stock on February 1, 2019, for $15.50 per share. On the date of the sale, Ted’s journal entry to record the transaction would include:

Select one: a. a debit to Investment in Maggie Inc. for $135,000 b. a credit to Investment in Maggie Inc. for $20,000 c. a debit to Gain on the Sale of Investment for $20,000 d. a debit to Gain on the Sale of Investment for $155,000 e. a credit to Gain on the Sale of Investment for $20,000

Answer 1

ANSWER

CORRECTOPTION(e)=a credit to Gain on the Sale of Investment for $20,000

Gain on sales of investment = Sale value of investment - Fair value of investment at 31.12.2018

= (10000*$15.50) - (10000*$13.50) = $20,000

On the date of the sale, Ted’s journal entry to record the transaction would include

"a credit to Gain on the Sale of Investment for $20,000"

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