Question

On August 1, ABC Company sold its investment in Teal Company for $12,400. On the previous balance sheet, the investment had a fair value of $11,400. The journal entry to record the sale will include a

Answer 1

Answer:

The journal entry to record the sale will include a,

Cash $12,400 (debit)

Profit and Loss $1,000 (credit)

Investment in Teal Company $11,400 (credit)

Explanation:

The Investment is carried in the the Financial statement at its Fair Value of $11,400, and this needs to be eliminated following the sale.

Recognize the cash proceeds following the sale of investment of $12,400.

Lastly any amount paid in excess of the Fair Value of the Investment must be recognized as profit or as loss (if fair value exceeds the cash proceeds)