Question

National Financial​ Services, Inc. invested $ 24,000 to acquire 5,000 shares of Stonebridge​ Investments, Inc. on March​ 15, 2015. This investment represents less than 20​% of the​ investee's voting stock. On May​ 7, 2018, National Financial​ Services, Inc. sells 2,000 shares for $ 13,250. When the journal entry to record the sale is​ made, ________.
A. Gain on Disposal will be creditedB. Loss on Disposal will be debitedC. Equity Investments will be debitedD. Cash will be credited

Answer 1

Answer:

A. Gain on Disposal will be credited

Explanation:

In this question we have to compare the purchase price and sale price per share which is shown below:

The Purchase price per share would be

= Total amount invested ÷ number of shares acquired

= $24,000 ÷ 5,000 shares

= $4.8 per share

And, the sale price per share would be

= Total amount ÷ number of shares sold

= $13,250 ÷ 2,000 shares

= $6.625 per share

Since the sale price per share is higher than the purchase price per share which reflects the gain.