When a 55-year-old individual receives a \$30,000 cash distribution from an investment, which of the following journal entries correctly records the transaction in the individual's accounting records?

• A. Debit Distribution Expense \$30,000; Credit Cash \$30,000
• B. Debit Cash \$30,000; Credit Investment Income \$30,000
• C. Debit Cash \$30,000; Credit Accounts Receivable \$30,000
• D. Debit Investment Income \$30,000; Credit Cash \$30,000

Answer: (B)

Verified step by step guidance

1. Understand the nature of the transaction: A cash distribution of \$30,000 is received by the individual, which means cash is increasing. This should be recorded as a debit to the Cash account, as debits increase asset accounts.
2. Determine the source of the cash distribution: The cash is received from an investment, which implies that the income generated from the investment is being recognized. Investment Income is a revenue account, and revenues are credited to reflect an increase.
3. Analyze the incorrect options: The option 'Debit Distribution Expense \$30,000; Credit Cash \$30,000' is incorrect because Distribution Expense is not relevant here, as the transaction is about receiving income, not incurring an expense.
4. Evaluate the other incorrect options: 'Debit Cash \$30,000; Credit Accounts Receivable \$30,000' is incorrect because Accounts Receivable represents amounts owed to the individual, not income received. Similarly, 'Debit Investment Income \$30,000; Credit Cash \$30,000' is incorrect because it reverses the correct treatment of the accounts.
5. Conclude the correct journal entry: The correct entry is 'Debit Cash \$30,000; Credit Investment Income \$30,000,' as it properly reflects the increase in cash and the recognition of investment income.