Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:

Question

Quizplus · Accepted Answer

Lessington Corporation purchased 4,000 shares of common stock of Gonzalez Company, which is an available-for-sale security. The entry to record the purchase of available-for-sale securities includes debit Long-Term Investments-AFS for the cost of the investment, which in this case is $150,000. Therefore, choice letter E is the correct answer. The par value of the stock is irrelevant to this transaction and hence, choice letter A is incorrect. There is no gain or loss recorded at the time of purchase and hence, choice letter D is incorrect. There is no credit to common stock as this is not related to the purchase of securities and hence, choice letter B is also incorrect.

Lessington Corporation Purchases 4,000 Shares of Gonzalez Company Common Stock