Explanation Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Rules of Debit and Credit: Following rules are followed for debiting and crediting different accounts while they occur in business transactions: Debit , all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities. Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses. Prepare the journal entries for the given transactions as follows: May 9– Purchase of short-term investment Date Account Titles and Description Post Ref. Debit ($) Credit ($) May 9 Short-term investment in company H (1) 5,150 Cash 5,150 (To record purchase of short-term investment in cash) Table (1) Short-term investment in Company R is an asset account, and it increases the value of assets by $5,150. Hence, debit short-term investment account with $5,150. Cash is an asset account and it decreases the value of asset by $5,150. Therefore, credit cash account for $5,150. Working note: Calculate the value of short-term investment Short-term investment = [ ( Number of shares × Price per share ) + Brokerage fee ] = ( 200 × $ 25 per share ) + $ 150 = $ 5 , 000 + $ 150 = $ 5 , 150 (1) June 2 – Sale 100 shares for $28 per share Date Account Titles and Description Post Ref. Debit ($) Credit ($) June, 2 Cash (3) 2,710 Gain from sale of short-term investments (5) 135 Short-term investment in Company H (4) 2,575 (To record the sale of stock investment in cash) Table (3) Cash is an asset account and it increases the value of asset by $7,450. Therefore, debit Cash account for $7,450. Gain from sale of short-term investments is a component of owner’s equity, and it increases the value of equity by $2,410. Hence, credit Gain from sale of short-term investments account with $2,410. Short-term investment in Company R is an asset account, and it decreases the value of assets by $5,040. Hence, credit short-term investment account with $5,040. Working Note: Calculate the value of cash received from the sale of stock investment Cash received = ( ( Number of shares sold × Sales price per share ) − Brokerage fees ) = ( 100 × $ 28 ) − $ 90 = $ 2 , 800 − $ 90 = $ 2 , 710 (2) Calculate the purchase value of short-term investment for 100 shares Purchase value = ( Cost of investment for 100 shares Number of shares invested × Number of shares sold ) = [ $ 5 , 150 200 × 100 ] = $ 2 , 575 (3) Calculate the unrealized gain (loss) from sale of stock investment

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ISBN: 9780078025754

Author: John Wild

Publisher: McGraw-Hill/Irwin

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Ch. C - Prob. 1MCQ Ch. C - Prob. 2MCQ Ch. C - Prob. 3MCQ Ch. C - Prob. 4MCQ Ch. C - Prob. 5MCQ Ch. C - Prob. 1DQ Ch. C - Prob. 2DQ Ch. C - Prob. 3DQ Ch. C - Prob. 4DQ Ch. C - Prob. 5DQ

Ch. C - Prob. 6DQ Ch. C - Prob. 7DQ Ch. C - Prob. 8DQ Ch. C - Prob. 9DQ Ch. C - Prob. 10DQ Ch. C - Prob. 11DQ Ch. C - Prob. 12DQ Ch. C - Prob. 13DQ Ch. C - Prob. 14DQ Ch. C - Prob. 15DQ Ch. C - Prob. 16DQ Ch. C - Prob. 17DQ Ch. C - Prob. 1QS Ch. C - Prob. 2QS Ch. C - Prob. 3QS Ch. C - Prob. 4QS Ch. C - Prob. 5QS Ch. C - Prob. 6QS Ch. C - Prob. 7QS Ch. C - Prob. 8QS Ch. C - Prob. 9QS Ch. C - Prob. 10QS Ch. C - Prob. 11QS Ch. C - Prob. 12QS Ch. C - Prob. 13QS Ch. C - QS C-14 Return on total assets The return on total...Ch. C - Prob. 15QS Ch. C - Prob. 16QS Ch. C - Prob. 17QS Ch. C - Prob. 18QS Ch. C - Prob. 1E Ch. C - Prob. 2E Ch. C - Prob. 3E Ch. C - Prob. 4E Ch. C - Prob. 5E Ch. C - Prob. 6E Ch. C - Prob. 7E Ch. C - Prob. 8E Ch. C - Prob. 9E Ch. C - Prob. 10E Ch. C - Prob. 11E Ch. C - Prob. 12E Ch. C - Prob. 13E Ch. C - Prob. 14E Ch. C - Prob. 15E Ch. C - Prob. 16E Ch. C - Prob. 17E Ch. C - Prob. 1AP Ch. C - Prob. 2AP Ch. C - Prob. 3AP Ch. C - Prob. 4AP Ch. C - Prob. 5AP Ch. C - Prob. 6AP Ch. C - Prob. 1BP Ch. C - Prob. 2BP Ch. C - Prob. 3BP Ch. C - Prob. 4BP Ch. C - Prob. 5BP Ch. C - Prob. 6BP Ch. C - Prob. 1SP Ch. C - Prob. 1BTN Ch. C - Prob. 2BTN Ch. C - Prob. 3BTN Ch. C - Prob. 4BTN Ch. C - Prob. 5BTN Ch. C - Prob. 7BTN Ch. C - Prob. 9BTN

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