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Chapter 11: Q14 (page 552)

Question: Hayes Company sold 10,000 shares of Kenyon Co. commonstock for \(27.50 per share, incurring \)1,770 in brokeragecommissions. These securities originally cost $260,000.Prepare the entry to record the sale of these securities.

Short Answer

Expert verified

Profit on the sale of the common stock is $13,230.

Step by step solution

01

Definition of common stock

Common stock is that stock whose holder has the right to participate in the management of the company.

02

Calculation of profit on sale of stock

Before record, the entry of the sale profit or loss on the sale of common stock is calculated.

Particulars

Amount

Proceeds from the sale of common stock ($10,000*$27.50)

$275,000

Less: Brokerage Commission

($1,770)

Net proceeds from sales

$273,230

Less: Cost of common stock

($260,000)

Profit on sale of common stock

$13,230

Hence, the company earns a profit of $13,230 on the sale of common stock.

03

Recording of journal entry

Entry for the proceeds of sale:

Particulars

Debit ($)

Credit ($)

Cash A/c Dr

$273,230

To Equity Investment

$260,000

To Gain on sale of stock

$13,230

(Gain on sale of common stock is $13,230)

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