Cole Corporation has 100,000 shares of common stock outstanding. The corporation
ID: 2479896 • Letter: C
Question
Cole Corporation has 100,000 shares of common stock outstanding. The corporation also owns 100,000 shares of William Company common stock purchased 5 years ago at $10 per share. Cole decided to distribute the William Company stock as a property dividend on the current basis of one share of William stock from each share of Cole stock owned. The william stock has a current market vaule of $25p per share and has been accounted for using the cost method since the date of acquisition.
Prepare the journal entries Cole Corporation would make for the declaration and payment of the dividend.
Explanation / Answer
Market value of investment = $25 per share x 100000 shares = $2500000
Cost of the shares = $10 per share x 100000 = $1000000
Gain on investment = $25 x 100000 - $10 x 100000 = $1500000
Journal entries:
Declaration Date:
Investments............................ .....................Dr. $1500000
Gain on Invesments.........................................................Cr. $1500000
(Appreciation in the value of investments in William stock recognised)
Declaration date
Retained earnings ........................................Dr. $2500000
Property Dividend Payable...............................................Cr. $ 2500000
(Property dividend declared)
Payment date
Investment..................................................Dr. $2500000
Property Dividend Declared..............................................Dr. $2500000
(Distribution of William shares as property dividend recorded)