Financial accounting 1

I think this is self explanatory.

You get 7000 for the sale of the shares, less 100 for commission. Revenue from sale, 6,900.

Original cost, 8,200 including commission. Allowance for UNREALIZED loss is

2,200. Net value, 6,000.

Cash 6,900 Allowance 2,200 Temporary Investments 8,200 Loss on Disposal 900

Naturally, you would have a LOSS since you sold the shares for less than your cost.

Now, think about your next homework question, apply what you learned in class, and LEARN what you are supposed to instead of having this group do your homework for you.

There is no need to be insulting. I'd rather you did not reply, and I do not require anyone to do my homework. Thanks for your response, MY HOMEWORK CONSIST OF 30 questions I NEEDED HELP WITH 1.

I am aware there is a loss, I did not ask for journal enteries.

Where are you recording the commission expense?

your answer is incorrect

I know that there is a loss on sale of investment, What I need to know is how much is the loss, and why? I calculate the Loss on sale of investment to be $700 Using the LCM standard given, I use the $7000 as the value of the investment, based on the definition of LCM. Then I added my cost of $100 + $200 commission, and now I have a loss of $700 (This is $8000 less $7300). Is this correct?

J> There is no need to be insulting. I'd rather you did not reply, and J> I J> do not require anyone to do my homework. Thanks for your response, J> MY J> HOMEWORK CONSIST OF 30 questions I NEEDED HELP WITH 1.

Keep in mind, there are many that do come here to get around reading the book. That being said, you probably have more information than many here on dealing with this specific problem. Since it is only one question and not a string of them, I don't see what the problem is. It has been a while, but I though it would be:

Temp invest 8,000 Broker Expense 200 Cash 8,200

At the end of the year you test the value:

Allow. unrecognized loss 2,000 Temp invest 2,000

When you sell it:

Cash 6,900 Broker Commission 100 Temp invest 6,000 Gain 1,000 (since the investment was reduced last year, you now have a gain)

The only reason I use the entries is to keep it all straight. The better way would be to use a "T" account and show each entry. Good luck. Please post the final answer when you get it back.

When you purchase the short term investment, you add the cost of commission TO the investment original cost. Original investment cost was 8,000 plus the

200 commission, total cost 8,200.

So, the loss is 900.

Total cost of investment 8,200 Allowance for writedown 2,200 Cash 7,000 Commission expense 100 Loss on disposal 800

Stephanie

Miegs Lam Mallouk "Financial Accounting, 9th Canadian Edition"

Page 211, Short-Term Investments:

"The enitre cost of purchasing the stock (including brokerage commission) is debited to the Temporary Investment - Equity Securities account."

There is no Broker Expense in this case.

I have a problem with the 100 commission on the sale. Usually it is the BUYER that pays the commission. EG. the sale of a house...

NO, you do not have a GAIN. You partially RECOVERED an UNREALIZED loss.

Ibid, page 213.

".. if there is a recovery in the market value, the recovery of unrealized losses may be recognized up to no more than the original cost."

Since you did not ACTUALLY sell the investment when you wrote it down, you did not have an ACUTAL loss. You can only realize a GAIN when you sell an asset for more than it cost you to purchase it. If the market recovers, but not completely, then you partially recover an *unrealized* loss.

Therefore when you DO sell the stock for 7000, you have only ACTUALLY realized a 1000 loss.

Investment 8200 Cash 8200

Unrealized loss 2200 Investment 2200

Cash 3400 Loss on disposal 700 Investment 3000 Unrealized loss 1100

Sorry for the journal entries... I was just getting it straight in my head. You have a $700 loss and here is why:

Your investment at $8.00/share was actually an investment at $8.20/share when the brokerage fee was included ((($8.00 x

1000)+200)/1000=$8.20).

When you wrote the investment down to LCM ($6.00), you actually have an unrealized loss of $2.20/share ($8.20-$6.00=$2.20) which, for 1000 shares is $2200 ($2.20 x 1000=$2200).

Now your investment is valued at $6.00/share or a total of $6000. You sell 500 shares for $7.00/share less the broker fee of $100 which nets you $3400 in cash (($7.00 x 500)-$100=$3400). However, 500 shares at your LCM value only decreases your investment by $3000 ($6.00 x

500=$3000). You've previously written down the investment by $2.20 a share and must adjust your unrealized loss by same for 500 shares ($2.20 x 500=$1100). The realized loss would then be $700.

Put in simplest terms... if you paid $8200 for 1000, you paid $4100 for 500. When you sold those 500 for $3400, you lost $700 ($4100-$3400=$700). The question attempts to confuse you with the unrealized loss which is only a "holding account" until a transaction is made.

Thank you Beverly for your calculation I appreciate your input, this makes sense.

Yes, but there is a distinction. The 800 is a loss on the investment, where the 100 is a commission expense.

Sorry, perhaps I'm being picky. :-)

Either way, they made a bad investment. :-D

Can you explain to me why you have credited a loss? You are so right about having this group do homework. The OP would fail the class if he/she was taught to credit a loss on disposal of an asset. A credit would be a gain, but it is obviously a loss.

I'm not normally this blunt or rude, but your attitude along with your ineptitude doesn't speak well for your firm. In fact, this accounting

1 student came up with the proper loss figure and you didn't.

Not necessarily. Hopefully, some homework was done before investing. But they DID make a common mistake and sold when the value was down... probably because of cash needs. Bad investment or bad financial planning... who knows.

Oh my gosh, you are right... a gain would be a credit and loss a debit.

Hi Beverly, You are obviously a person of integrity and intelligence it shows in your response, I posed the question because I thought the forum was there to assist, I have to say I was surprised at the rude comment that was directed to me by S.M. Serba, Thank you again your help.

Hi Beverly, You are obviously a person of integrity and intelligence it shows in your response, I posed the question because I thought the forum was there to assist, I have to say I was surprised at the rude comment that

was directed to me by S.M. Serba, Thank you again for your help.