On January 4,2011,Larsen Company purchased 5,000 shares of Warner Company for $59,500 plus a broker's fee of $1,000.Warner Company has a total of 25,000 shares of common stock outstanding and it is presumed the Larsen Company will have a significant influence over Warner.During each of the next two years,Warner declared and paid cash dividends of $0.85 per share.Its net income was $72,000 and $67,000 for 2011 and 2012,respectively.The January 12,2013,entry to record the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:

Question

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To record the sale of 3,000 shares of Warner Company stock for $39,000 cash, we need to calculate the cost of the shares sold using the cost method. The cost of the 5,000 shares purchased on January 4, 2011, was $59,500 plus a broker's fee of $1,000, which makes the total cost $60,500. The cost per share is $60,500 divided by 5,000 shares, which equals $12.10 per share. Therefore, the cost of the 3,000 shares sold is 3,000 shares times $12.10 per share, which equals $36,300. The entry to record the sale of the 3,000 shares should be:
Cash (proceeds from sale) $39,000
Cost of Warner shares sold $36,300
Gain on sale of Warner shares $2,700
To record the sale of 3,000 Warner Company shares at $39,000 cash.

On January 4,2011,Larsen Company Purchased 5,000 Shares of Warner Company