Question

Lucid Company declared a property dividend of 37,000 shares of its investment in $1 par Polk Company common stock. The Polk stock was purchased for $2 per share. The fair value of Polk’s stock was $9 per share on the declaration date of the property dividend and $10 per share on the distribution date. What is the amount of the dividend?

Answer 1

Multiple choices are as follows:

a) $333,000.

b) $407,000.

c) $74,000.

The correct option is A,$333,000

Step-by-step explanation:

The stock dividend is to be valued at the market price at the date of declaration.

The declaration date is the date the company made known its intention to reward the stockholders with free stocks instead of a cash dividend,using the market price of stock at declaration date,the stock dividend is valued thus:

Stock dividend=number of stock dividend*market price

number of stock dividend is 37000 shares

market price is $9(market price at declaration date)

stock dividend=37,000*$9=$333,000