Question

16. On Fe bruary 15, 20x1, the Sanders Company purchased 900 shares of Carney Brothers common stock at $12 per share as a short-term investment. The $12 price included a dividend of so.25 per share. The dividend was declared on February 10 and payable to holders of record as of February 20. Dividend checks were disbursed on February 28 and received by Sanders Company on March 2. On June 12, 300 shares of Ca rney Brothers common stock were sold for 18Va. The correct journal entry to record the June 12 transaction is A. Cash 3,600 Short-Term Investment-Stocks 3,600 B. Cash 5,625 Short-Term Investment-Stocks 3,600 Gain on Sale of Securities 2,025 C. Cash 5,625 Short-Term Investment-Stocks 5,625 D. Cash 5,625 Short-Term Investment-Stocks 3,525 2,100 Gain on Sale of Securities

Answer 1

Cost of each share sold = $12 - $0.25 = $11.75

Selling price of each share = $18.75

Cost of shares sold = Number of shares sold X cost of each share

= 300 X $11.75

= $3,525

Cash received on sale = Number of shares sold X selling price

= 300 X $18.75

= $5,625

Gain on sale = Selling price - cost

=$5,625 - $3,525 = $2,100

Correct option is Option D.