Diamond’s Corporation has an investment in 5,000 shares of Sigmond Company commo

Question

Diamond’s Corporation has an investment in 5,000 shares of Sigmond Company common stock with a cost of $218,000. These shares are used in a property dividend to stockholders of Diamond’s. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The market value per share of Sigmond stock is $63 on May 25. The net effect of this property dividend on retained earnings is a reduction of

a. $340,000. b. $330,000. c. $315,000. d. $218,000.

Explanation / Answer

d. $218,000

Market Value = $63 x 5,000 = $315,000

The net effect of this property dividend on retained earnings is a reduction of $218,000.

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