Winger Corporation owned 600,000 shares of Fegan Corporation stock. On December

Question

Winger Corporation owned 600,000 shares of Fegan Corporation stock. On December 31, 2014, when Winger's account “Equity Investments (Fegan Corporation”) had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 2,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date.

Explanation / Answer

Answer. Value of Dividend = Value of Investment at the date of Declaration Div. Value of Winger Corp = 600,000 Shares X $7 = $4,200,000 Unrealized Gain on Sale of investment (Shares of Fegan Corp.) = ($7 - $5) X 600,000 = $1,200,000 Net Effect on Retained Earnings = (4,200,000) (Value of Dividend declared) +1,200,000 (Unrealized Gain on Investment) Net Effect on Retained Earnings = (3,000,000) Retained earnings or Total Stockholders equity will be reduced bu $3,000,000

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.