How do I account for this?
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Luv2Answer asked:
I asked this yesterday and I only got 1 response so I’m posting again:
This is not homework! I am a bookkeeper at a small company and haven’t had to deal with this before. We recently sold $30,000 in Long Term Investments. I made a JE to Debit the Cash Account and Credit the Long Term Investment Asset on BS. I think I should have made a journal to hit the income statement for Recognized Gain/Loss on Investment. If I do, which I don’t know what it is yet, what the heck would be the Credit side of the entry. I have no idea what the cost or gain/loss was. We asked the broker to just cash out a specific dollar amount, not a certain fund or amount of shares. Please help. 10 points to best answer. Thank you!!!!!
These answers help but what is confusing me is that is looks like last year the previous accountant Debited - Recognized Gain/Loss on Sale and Credited - L/T Invesment Undeposited Cash. I have never even heard of such an account before. I guess what’s right is more important than what they did before because I’m going to be held accountable and need to support whatever I do.
GRANT
I asked this yesterday and I only got 1 response so I’m posting again:
This is not homework! I am a bookkeeper at a small company and haven’t had to deal with this before. We recently sold $30,000 in Long Term Investments. I made a JE to Debit the Cash Account and Credit the Long Term Investment Asset on BS. I think I should have made a journal to hit the income statement for Recognized Gain/Loss on Investment. If I do, which I don’t know what it is yet, what the heck would be the Credit side of the entry. I have no idea what the cost or gain/loss was. We asked the broker to just cash out a specific dollar amount, not a certain fund or amount of shares. Please help. 10 points to best answer. Thank you!!!!!
These answers help but what is confusing me is that is looks like last year the previous accountant Debited - Recognized Gain/Loss on Sale and Credited - L/T Invesment Undeposited Cash. I have never even heard of such an account before. I guess what’s right is more important than what they did before because I’m going to be held accountable and need to support whatever I do.
GRANT
December 29th, 2008 at 8:33 pm
JULIUS
Debit Cash - Amount Received
Credit B/S - Long Term Investment (the carrying amount on the B/S)
Credit (if a gain) / Debit (if a loss) Income Statement the Balance(i.e. the difference between the cash you received for it and the amount it was stated at in your FS before you sold it).
If you need clarification post again, I’m here for a while
UPDATE: you need to find out how much of the carrying value of investments you sold. For example if $30,000 at selling value represented 90% of the amount you had originally booked in the B/S, then you would only credit 90% of the Asset in the new journal. If this doesn’t help please provide the following info:
Value of Investments held before sale;
Remaining Value of Investments;
% of the Fund that you disposed of;
December 31st, 2008 at 10:23 pm
WILEY
What type of investment is this and how was it classifed under SFAS 114? Since it is a small company I assume it was most likely not accounted for under GAAP and held at cost in which case you would apply the below example.
The gain or loss would simply be the difference between the cost and the selling price. For example if the investment’s cost was $25,000, the gain would be $30,000. The original journal entry should have been:
Dr. Cash $30
Cr Investment $25
Cr Gain on Sale $5
Since the original entry was recorded as $30 to both cash and investment the correcting entry would be:
Dr. Investment $5
Cr. Gain on Sale $5
You can figure out the original carrying value by taking the percentage of the investment sold for $30K times the original cost of the investment.
If the investment is marked to market (AFS investment in accordance with SFAS 114) on the balance sheet (i.e. unrealized gain loss presented in Other Comprehensive income within owner’s equity) you will have to reverse any unrealized gain or loss in addition to the related deferred tax asset/liability as well.
Hope that helps.