National Financial Services, Inc. invested $ 15,000 to acquire 5,000 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 2,500 shares for $ 20,250. When the journal entry to record the sale is made, ________.
a. Gain on Disposal will be credited
b. Loss on Disposal will be debited
c. Equity Investments will be debited
d. Cash will be credited

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andromache andromache · Answer 1 · 2019-12-21T08:22:15+01:00

Answer:

a. Gain on Disposal will be credited

Explanation:

For recording this sale, first we have to determine the per share selling price and purchase price which is shown below:

Purchase price would be

= Invested amount ÷ number of shares acquired

= $15,000 ÷ 5,000 shares

= $3

Now the sale price would be

= Sales amount ÷ number of shares acquired

= $20,250 ÷ 2,500 shares

= $8.1

Since the selling price is more than the purchase price which would reflect the gain and the gain part is always credited