Answer:
The appropriate journal entry to record the sale of the 15,000 shares:
Dr Cash 800,000
Cr Investment - Thomas Corp 780,000
Cr Gain on investment disposal 20,000
(to record the investment disposal of 15,000 Thomas Corp's shares)
Explanation:
Before the disposal of the investment on Thomas, Roberts Co. should use the equity method to account for this investment because 30% of Thomas' shares which is 30,000 ( 100,000 x 30%) is possessed by Robert Co. and Robert Co. has significant influence over Thomas.
So, by the end of 2013, Robert's treatment to this investment should be:
Opening balance as of 2013: $1,500,000
Plus: Share of net profit : $90,000 (calculated as 300,000 x 30%)
Minus: Dividend received : $(30,000) (calculated as 100,000 x 30%)
Closing balance as of 2013: $1,560,000
=> Value per share = 1,560,000 / 30,000 = $52.
So, as at January 4 2014, because 15,000 shares is sold, the Investment account is Credited ( decreased) by $780,000 ( 52 x 15,000) and the total sales's receipt of $800,000 will generate the profit of $20,000 ( calculated as $800,000 - $780,000).
