On December 31 of the prior year,Anna Company owned 1,000 shares of Egert Company common stock with a cost of $12,000 and a fair value of $11,000.This is the only investment held by Anna.On June 1 of the current year,Anna sells 500 of the Egert company shares for $7,200.On December 31 of the current year,the fair value of Egert Company common stock was $13 per share.Anna made no other purchases or sales of investments during the current year.The journal entry to record the sale of the shares on June 1 is:
A)Debit Cash,$7,200; Credit Stock Investments - Egert Company,$6,000; Credit Unrealized Gain - Income,$1,200.Combined financial statements
B)Debit Cash,$7,200; Credit Stock Investments - Egert Company,$5,500; Credit Gain on Sale of Stock Investments,$1,700.
C)Debit Cash,$7,200; Credit Stock Investments - Egert Company,$6,000; Credit Gain on Sale of Stock Investments,$1,200.
D)Debit Cash,$7,200; Debit Unrealized Gain - Income,$500; Credit Stock Investments - Egert Company,$5,000; Credit Gain on Sale of Stock Investments,$1,700.
E)Debit Cash,$7,200; Credit Unrealized Loss - Income,$500; Credit Stock Investments - Egert Company,$6,000; Credit Gain on Sale of Stock Investments,$700.

Question

Quizplus · Accepted Answer

The journal entry to record the sale of the shares on June 1 should include a debit to cash for $7,200, a credit to the stock investments account for $6,000 (500 shares x $12 cost per share), and a credit to the gain on sale of stock investments account for the difference between the sale price of $7,200 and the cost of the shares sold of $5,500, which is $1,700. This is because the fair value of the remaining 500 shares that Anna still owns did not change until the end of the year, so there is no unrealized gain or loss to record at the time of the sale. Option C is the only choice that includes these three accounts and amounts.

On December 31 of the Prior Year,Anna Company Owned 1,000