Question

The Inn Company originally bought other companies' stocks for $50,000; now it has sold its holdings for $45,000 and paid a broker a commission of $300 for the sale. As a result of this sale, accountants at the Inn Company should debit the account Loss on Sale of Short-Term Investments for ______.

1) $300
2) $500
3) $5000
4) $5300

Answer 1

The accountants at the Inn Company should debit the account Loss on Sale of Short-Term Investments for $5,300, which is the total loss after selling the stocks for less than their original cost and paying the broker's commission. So the correct answer is option 4.

Step-by-step explanation:

The Inn Company originally purchased other companies' stocks for $50,000 and sold them for $45,000, incurring an additional cost of $300 for the broker's commission. To calculate the loss on the sale of short-term investments, we subtract the sale proceeds from the original cost of the stocks and add the commission fee.

The accounting profit or loss is calculated as follows:

• Original cost of stocks: $50,000
• Sale proceeds: $45,000
• Broker's commission: $300
• Total loss: ($50,000 - $45,000) + $300 = $5,300

Therefore, the accountants at the Inn Company should debit the account Loss on Sale of Short-Term Investments for $5,300.