Question

CH7 - MKI SELL Wharton, Inc. pays income taxes on capital gains at a rate of 30 percent. At December 31, year 1, the company owns marketable securities that cost $180,000 but have a current market value of $520,000. c. Prepare a journal entry at January 4, year 2. to record the cash sale of these investments at $520,000. d. What effect will the sale recorded in partc have on Wharton's tax obligation for year 2? point Complete this question by entering your answers in the tabs below. LICE Required C Required D Prepare a journal entry at January 4, year 2, to record the cash sale of these investments at $520,000. (If no entry is required for a transaction/event, select "No Journal entry required" in the first account field.)

Answer 1

a) As per the question wharton inc has acquired investments for $180,000 and sold the same for 520,000 there by realising gains of 340,000 (sales proceeds -costs of investment) . The following will be the entry for the same

Cash ........ Dr ..... 520,000

To Investments.... Cr....180,000

To Gain on sale of investment .... Cr 340,000

(Being gain on sale of investment recorded)

b) It was given in the question that Wharton Inc has to Pay capital gains tax at 30% . hence tax liability will be (gain on sale *30%)= 102,000 for which entry will be as follows:

Tax expense ... Dr... 102,000

To Tax payable .... Cr 102,000

(Being tax payable on gain on sale of investment recorded)