Question

A public company has declared a property dividend of one share of its investment in M corporation for every 10 shares of its common stock outstanding. The M shares were originally purchased by the company for $50 per share; on the date the dividend was declared, the market value was $75 per share. As a result of this declaration, the company should recognize A. An appropriate gain or loss based on the market value on the date of distribution. B. A gain of $25 per share to be distributed. C. A loss of $25 per share to be distributed. D. No gain or loss.

Answer 1

B. A gain of $25 per share to be distributed

Step-by-step explanation:

The computation of the per share recognized by the company is shown below:

Since the market value per share is $75

And, the purchase price per share is $50

At the time when the dividend of the property is declared so the property should be calculated at the fair value i.e.

= $75 - $50

= $25 per share

Therefore the option b is correct