Question

Markus Company sells 1,000 bonds of its debt investment in Berta Inc. for $20,000. The original cost of the 1,000 bonds was $18,000. During the prior year, the bonds were reported on the balance sheet at a fair value of $19,000. Assume the investment was accounted for as available-for-sale and all unrealized holding gains and losses have been reversed. The journal entry to record the sale of the bonds should include these credits:

Answer 1

Answer:

To Investment i.e available for sale $18,000

To Gain on sale of an investment $2,000

Explanation:

The journal entry for the sale of the bond is shown below:

Cash Dr       $20,000

         To Investment i.e available for sale $18,000

         To Gain on sale of an investment $2,000

(Being the sale of the bond is recorded)

For recording this we debited the cash as it increased the assets and credited the investment and gain on sale of investment so that the proper posting could be done