Final answer:
The question involves creating a journal entry to record the sale of trading securities at a loss. The correct entry debits Cash for $38,000, debits Loss on Sale of Securities for $2,000, and credits Trading Securities for the $40,000 cost.
Step-by-step explanation:
The student is asking about the journal entry to record the sale of Mastercard trading securities. When securities are sold, the company must recognize both the cash received and any gain or loss on the sale. In this case, the securities were sold for $38,000, but they had a cost of $40,000, resulting in a $2,000 loss.
To record the transaction, the company would debit Cash for the amount received, debit Loss on Sale of Securities for the loss incurred, and credit Trading Securities for the original cost of the securities.
The journal entry would be:
- Debit Cash: $38,000
- Debit Loss on Sale of Securities: $2,000
- Credit Trading Securities: $40,000
This entry reflects the cash inflow from the sale, the reduction of the asset (trading securities), and recognizes the loss from the sale in the financial statements.