Question

Boxer Company owned 16,000 shares of King Company that were purchased in 2016 for $440,000. On May 1, 2018, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $22 per share on the date of declaration and $38 per share on the date of distribution. By how much is retained earnings reduced by the property dividend?

Answer 1

Answer:

By 110,000 the retained earnings reduced by the property dividend.

Explanation:

Retained Earnings: The retained earnings is that earnings which is left after all payments relating to the business expenses, shareholder dividend. The earnings which is to be retained so that it can come in use in near future.

For retained earning calculation, the stock market value is recorded when the date is declared not on distribution date.

So, the calculation is computed below:

As the 50,000 shares is given for every 10 shares. So, first we have to compute for 1 share which comes by dividing shares to number of shares i.e.  50,000 shares ÷ 10 shares = 5,000 for 1 share.

Now, multiply by market value which comes = 5,000 × $22 = $110,000.

So, by 110,000 the retained earnings reduced by the property dividend.