Chase Co.owned 30,000 common shares of Sanborn Corporation purchased in 2008 for $540,000.On September 20,2014,Chase declared a property dividend of 1 share of Sanborn for every 5 shares of Chase stock held by a stockholder.On that date,there were 50,000 common shares of Chase outstanding,and the market value of Sanborn shares was $30 per share.The entry to record the declaration of the property dividend would include a debit to Retained Earnings of

Question

Quizplus · Accepted Answer

The property dividend involves distributing shares of Sanborn Corporation to Chase stockholders. In this case, for every 5 shares of Chase stock held by a stockholder, they would receive 1 share of Sanborn. Since there were 50,000 common shares of Chase outstanding, this means that 50,000/5 = 10,000 Sanborn shares would be distributed as the property dividend. The market value of each Sanborn share is $30, so the total value of the property dividend is 10,000 x $30 = $300,000. Since the property dividend reduces the value of Chase's investment in Sanborn, there should be a debit to Retained Earnings for the fair value of the property dividend, which is $300,000. Therefore, the correct answer is B) $300,000.

Chase CoOwned 30,000 Common Shares of Sanborn Corporation Purchased in 2008