Question

On December 12, 2024, an investment in equity securities costing $80,000 was sold for $100,000. The total of the sale proceeds was credited to the investment in equity securities account.

Prepare the journal entry to correct the error, assuming it is discovered before the books are adjusted or closed in 2024. (Ignore income taxes.) (Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

To correct an error where sale proceeds were credited to an investment account, debit Cash for $100,000, credit the Investment in Equity Securities account for $80,000, and credit Gain on Sale of Investments for $20,000.

Step-by-step explanation:

When an investment in equity securities is sold, the journal entry should reflect the sale and the gain or loss on that sale. If the sale proceeds were incorrectly credited to the investment account, the entry to correct it should remove the sale amount from the investment account and recognize the correct amount of cash and gain.

Here's how you would prepare the correcting journal entry:

• Debit the Investment in Equity Securities account for the initial cost of the investment ($80,000).
• Credit Gain on Sale of Investments for the difference between the sale price and the cost ($20,000).
• Credit Cash for the total sale proceeds ($100,000).

The corrected journal entry would look like this:

• Cash: $100,000 (debit)
• Investment in Equity Securities: $80,000 (credit)
• Gain on Sale of Investments: $20,000 (credit)