Boxer Company owned 20,000 shares of King Company that were purchased in 2011 for $500,000. On May 1, 2013, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the property dividend?

Question

Quizplus · Accepted Answer

The retained earnings are reduced by the fair market value of the property dividend on the date of declaration. Boxer declared a dividend of 1 share of King for every 10 shares of Boxer stock, which means 5,000 shares of King will be distributed (50,000 / 10). The market value on the declaration date was $30 per share, so the reduction in retained earnings is 5,000 shares * $30 = $150,000.

Boxer Company Owned 20,000 Shares of King Company That Were