Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2007 for $240,000.
ID: 2559983 • Letter: F
Question
Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2007 for $240,000. On December 15, 2010, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2011. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $400,000. Assuming that Eaton shares have not been market to market since acquisition, the entry to record the declaration of the dividend would include a:
credit to Retained Earnings of $240,000.
debit to Retained Earnings of $160,000.
credit to Retained Earnings of $240,000.
debit to Retained Earnings of $400,000.
Explanation / Answer
The entry to record the declaration of the dividend would include a debit to Retained Earnings of $400,000.
As the aggregate market price of the Eaten shaares on the declaration date is $400,000.
So, correct answer is d.
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