Question

National Financial​ Services, Inc. invested $ 15,000 to acquire 5,000 shares of Stonebridge​ Investments, Inc. on March​ 15, 2015. This investment represents less than 20​% of the​ investee's voting stock. On May​ 7, 2018, National Financial​ Services, Inc. sells 2,500 shares for $ 20,250. When the journal entry to record the sale is​ made, ________.

a. Gain on Disposal will be credited
b. Loss on Disposal will be debited
c. Equity Investments will be debited
d. Cash will be credited

Answer 1

a. Gain on Disposal will be credited

Step-by-step explanation:

For recording this sale, first we have to determine the per share selling price and purchase price which is shown below:

Purchase price would be

= Invested amount ÷ number of shares acquired

= $15,000 ÷ 5,000 shares

= $3

Now the sale price would be

= Sales amount ÷ number of shares acquired

= $20,250 ÷ 2,500 shares

= $8.1

Since the selling price is more than the purchase price which would reflect the gain and the gain part is always credited