Sale of Stock Investment Journal Entry

Overview

Sometimes, the company may need to sell the stock investment back when it needs cash for the business operation or for any other reasons. In this case, the company usually makes a gain or loss as a result of the sale.

Likewise, the company needs to make the journal entry for gain or loss on the sale of stock investment in the income statement together with the removal of the sold stock investment from the balance sheet.

Sale of stock investment journal entry

Gain on sale of stock investment

The company will make a profit when it sells the stock investment for the amount of net proceed (sale price – brokerage fees) that is more than its cost. Hence, the company can make the journal entry for gain on sale of stock investment by debiting the cash account and crediting the gain on sale of stock investments account and stock investments.

Account	Debit	Credit
Cash	$$$
Gain on sale of stock investments		$$$
Stock investments		$$$

Loss on sale of stock investment

Alternatively, the company will make a loss if it sells the stock investment for the amount (after deducting the brokerage fees) that is less than its cost. In this case, the company will need to make the journal entry for the loss on the sale of stock investment by debiting cash account and the loss on sale of stock investments account and crediting the stock investments to remove it from the balance sheet.

Account	Debit	Credit
Cash	$$$
Loss on sale of stock investments	$$$
Stock investments		$$$

Example

For example, on January 2, 2021, the company ABC decides to sell all the stock investments it has with the XYZ Corporation that presents 10% of XYZ Corporation’s total shares. It receives the net proceed (after deducting brokerage fees) of $54,500 for the sale. And the original cost of stock investment it has with XYZ Corporation is $50,000.

In this case, the company ABC makes a gain of $4,500 (54,500 – 50,000). Hence, it can make the journal entry for the gain on sale of stock investment as below:

Account	Debit	Credit
Cash	54,500
Gain on sale of stock investments		4,500
Stock investments		50,000