ZIP Company owns 43,000 shares of the common stock of PIK Company. ZIP decided t

Question

ZIP Company owns 43,000 shares of the common stock of PIK Company. ZIP decided to divest itself of this investment by distributing the PIK shares in the form of a property dividend. The dividend ratio is one share of PIK for every four shares of ZIP common held by shareholders. ZIP has 172,000 common shares outstanding. On April 15, 2016, the date of declaration, PIK stock had a par value of $5 per share, a book value of $12.3 per share, and a market value of $17.3 per share.

Required: Prepare any necessary journal entries. The shares were distributed on May 15, 2016, to stockholders of record on May 1, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record appreciation of investment.

2.Record declaration of property dividend.

3. Record the entry on date of record.

4.Record the payment of the property dividend.

Explanation / Answer

Answer Share Outstanding of ZIP Ltd 172000 Bonus (Bonus Ratio 1:4) 43000 Market Value of PIK Shares 17.30 Total Market Value of Bonus 743900 Assume ZIP invest on par value @ $ 5 215000 Appreciation of Investment 528900 Answer 1 Record appreciation of Investment Date Account Debit Credit 04/15/2016 Long Term Investment - Shares 528900 Gain on appreciation - Shares 528900 Answer2 Record Declaration of property investment Date Account Debit Credit 05/01/2016 Reatined Earning 743900 Dividend Payable account 743900 Answer 3 Record the entry of date of record No Entry required Answer 4 Record the payment of property devidend Date Account Debit Credit 05/15/2016 Dividend Payable account 743900 Long Term Investment - Shares 743900

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