Greg Financial Services invested $15,000 to acquire 3,750 shares of Mitt Investments on March 15, 2012. This investment represents less than 20% of the investee's voting stock. On May 7, 2016, Greg Financial Services sells 1,750 shares for $12,250. Which of the following will be the correct journal entry for this transaction?

Question

Quizplus · Accepted Answer

The journal entry to record the sale of the shares will be to debit cash for $12,250 (proceeds received), credit the investment in Mitt Investments account for $6,875 (1,750 shares sold at a cost of $3.92 per share), and recognize a gain on sale of investments for $5,375 (difference between proceeds and carrying value of the shares sold). Therefore, the correct journal entry is:
Cash ................................. $12,250
Investment in Mitt Investments.... $6,875
Gain on sale of investments...... $5,375

Greg Financial Services Invested $15,000 to Acquire 3,750 Shares of Mitt