Question

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

Short answer

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

Step-by-step solution

Definition of common stock

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

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.

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)