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1 February, 19:43

On August 1, Masters Company buys 2000 shares of ABD common stock for $72500 cash. On December 1, the stock investments are sold for $75000 in cash. Which of the following are the correct journal entries to record for the purchase and sale of the common stock?

(a) Aug. 1 Cash 72500 Stock Investments 72500 Dec. 1 Cash 75000 Stock Investments 72500 Gain on Sale of Stock Investments 2500

(b) Aug. 1 Stock Investments 72500 Cash 72500 Dec. 1 Cash 75000 Stock Investments 72500 Gain on Sale of Stock Investments 2500

(c) Aug. 1 Cash 72500 Stock Investments 72500 Dec. 1 Stock Investments 75000 Cash 72500 Gain on Sale of Stock Investments 2500

(d) Aug. 1 Stock Investments 72500 Cash 72500 Dec. 1 Stock Investments 75000 Cash 72500 Gain on Sale of Stock Investments 2500

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  1. 1 February, 23:13
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    The answer is: B) Aug. 1 Stock Investments 72500 Cash 72500 Dec. 1 Cash 75000 Stock Investments 72500 Gain on Sale of Stock Investments 2500

    Explanation:

    The capital gains can be calculated by the difference between the selling price minus the buying price:

    Capital gains = $75,000 - $72,500 = $2,500

    On August 1, cash should be credited (asset decrease) and stock investments should be debited (asset increase)

    Dr Stock Investments 72,500 Cr Cash 72,500

    On December 1, cash should be debited (asset increase), stock investments should be credited (asset decrease) and gain on sale of stock should be credited (revenue).

    Dr Cash 75,000 Cr Stock Investments 72,500 Cr Gain on Sale of Stock Investments. 2,500
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