Question

Concord Corporation owned 16000 shares of Ivanhoe Corporation. These shares were purchased in 2017 for $130000. On November 15, 2021, Concord declared a property dividend of one share of Ivanhoe for every ten shares of Concord held by a stockholder. On that date, when the market price of Ivanhoe was $29 per share, there were 130000 shares of Concord outstanding. What gain and net reduction in retained earnings would result from this property dividend

Answer 1

• Gain = $271,310
• Net reduction in retained earnings = $‭105,690‬

Step-by-step explanation:

Gain = (Ivanhoe market price - Purchase price) * Number of shares issued as property dividend

Purchase price = 130,000 / 16,000

= $8.13

Number of shares issued as property dividend = 130,000 shares of Concord / 10

= 13,000 Ivanhoe shares

Gain = (29 - 8.13) * 13,000

= $‭271,310‬

Net reduction in retained earnings:

= Dividends payable - Gain

= (13,000 * 29) - ‭271,310‬

= $‭105,690‬