Answer:
Net reduction in retained earning = (304,267)
Explanation:
No. Of shares outstanding of McCaffrey = 280,000 shares
No. Of shares issued as property Dividend = 280,000/20×1 = 14,000 shares.
Market price of shares issued as property Dividend = 14000× 34 = $476,000
Cost of 14000 shares of Harper corporation = $ 326,000/15000×14000= $ 304,267
Net gain = 476,000- 304267 = $171,733
Property Dividend = $ 476,000
So, net reduction in retained earning = 171,733- 476,000 = (304,267)
Note:
Due to gain on issue of shares as property Dividend , retained earning increases . Because these shares are issued at more than they actually purchased.
Due to issue of shares as property Dividend , retained earning decrease because property divided decreases is declared from retained earning .
