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: (Select all that apply.)

Answer 1

Answer:

Credit the following;

Investment (Available for sale) $18,000

Gain on sale of an investment $2,000

Explanation:

Assuming all the unrealized holding gains and losses have been reversed, the investment will be recorded at the original cost of $18,000 instead of the fair value and the gain would then be $2,000.

The Journal entry for the sale would be;

DR Cash.......................................... .............$20,000

CR Investment (Available for sale)......................... $18,000

Gain on sale of an investment .................................$2,000

(To record sale of bond investment)