For this problom, is the journal entry (2) in bold/ italic correct, please advic
ID: 2557427 • Letter: F
Question
For this problom, is the journal entry (2) in bold/ italic correct, please advice with explanation?
Property dividend is an investment in equity securities “available for sale”:
The Remley company declares a property dividend on 3/15/15, Payable in Welch company stock. The Welch stock had been purchased early in 2014 for $24,000 and was reported as an asset at a fair value of $29,000 on 12/31/14 balance sheet.
The market value of Welch stock is $31,000 on 3/15/15. The following entries are made on 3/15/15 (the declaration date):
Adj. prior to the recog. Of dividends payable:
1) Fair Value Adjustment 2,000
Unrealized holding gain-B/S 2,000
2) Unrealized holding gain 7,000
Gain on Disposal of Investment 7,000
J.E. on the declaration date:
Retained Earnings 31,000
Property Dividends Payable 31,000
J.E. on the payment date:
Property Dividends Payable 31,000
Equity Investments 24,000
Fair Value Adjustment 7,000
Explanation / Answer
SOLUTION:
Particulars Debit Credit Fair Value Adjustment 2,000 Unrealized holding gain-B/S 2,000 (MV-FV = 31,000 - 29,000) Unrealized holding gain 7000 Gain on Disposal of Investment 7000 (MV-Purchase price =31,000 - 24,000 = 7,000) J.E. on the declaration date: Retained Earnings 31,000 Property Dividends Payable 31,000 J.E. on the payment date Property Dividends Payable 31,000 Equity Investments 24,000 Fair Value Adjustment 7,000