On December 12, 2018, an equity investment costing $80,000 was sold for $100,000
ID: 2550422 • Letter: O
Question
On December 12, 2018, an equity investment costing $80,000 was sold for $100,000. The investment was carried in the balance sheet at $75,000, and was accounted for under the equity method. An error was made in which the total of the sales proceeds was credited to the investment account.
1) prepare the journal entry to correct the error assuming it is discovered before the books are adjusted or closed in 2018.
2) Prepare the journal entry to correct the error assuming it is not discovered until early 2019.
Explanation / Answer
Date Accounts title and Explanation Debit Credit 1 Investment (100000-80000) 20000 Gain on sae of the investment 20000 ( To record the rectification of error in the books before the books are closed 2 Investment (100000-80000) 20000 Retained earnings 20000 ( To record the rectification of the error after closing the books )
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