Question

On December 12, 2021, an investment in equity securities costing $82,000 was sold for $104,000. The total of the sale proceeds was credited to the investment in equity securities account.

Required:
1. Prepare the journal entry to correct the error, assuming it is discovered before the books are adjusted or closed in 2021. (Ignore income taxes.)
2. Prepare the journal entry to correct the error assuming it is not discovered until early 2022. (Ignore income taxes.)

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

December 2021

Investments Dr, $22,000

To Gain on sale of investment $22,000

($104,000 - $82,000)

(Being Gain on sale of investment is recorded)

December 2021

2. Investment Dr, 22,000

To Retained Earnings $22,000

($104,000 - $82,000)

(Being retained earning is recorded)