Question

Diamond's Corporation has an investment in 5,000 shares of Sigmoid Company common stock with a cost of $218,000. These shares are used in a property dividend to stockholders of Diamond's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The market value per share of Sigmund stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of

Answer 1

$218,000

Step-by-step explanation:

Calculation for the net effect of this property dividend on retained earnings

First step is to find the market value per share Total amount on May 25

Market value =(5,000 * $63)

Market value= $315,000

Second step is to find the net effect of this property dividend on retained earnings

Using this formula

Net effect = Total Market value amount-(Total Market value amount-Cost)

Let plug in the formula

Net effect =$315,000 - ($315,000 - $218,000)

Net effect=$315,000-$97,000

Net effect =$218,000

Therefore the net effect of this property dividend on retained earnings will be $218,000