Pense Co.purchased 40% of the stock of Stretch Co.in Year 1 for $100,000.Stretch had net income in Year 1 of $50,000 and net income in Year 2 of $30,000.Stretch also paid total dividends of $20,000 in Year 2.On January 1, Year 3, Pense Co.sold its investment in Stretch Co.to GE Capital Corporation (GE) for $130,000.What entry would Pense Co.make to record the sale of Stretch Co.?

Question

Quizplus · Accepted Answer

To record the sale of Stretch Co., Pense Co. should debit Cash for $130,000 as they received cash from GE Capital Corporation for the sale of their investment. Pense Co. should also credit Investment in Stretch for its original cost of $100,000 and credit Gain on Sale for the difference between the sale price of $130,000 and the investment's carrying amount of $124,000. Therefore, the entry would be:
Cash  $130,000
Gain on Sale     $6,000
Investment in Stretch  $124,000

Pense CoPurchased 40% of the Stock of Stretch Co