F7 Pensions and Equity M6

Instead of the usual cash dividend, Evie Corp. declared and distributed a property dividend from its overstocked merchandise. The excess of the merchandise's carrying amount over its market value should be:

A loss is recognized for the merchandise's carrying amount over its market value. This results in a reduction in income form continuing operations

A liquidating dividend is

Amount in excess of retained earnings balance

If a corporation declared a dividend, and a portion of which was liquidating

Both additional paid in capital and retaining earnings will decrease

When a company declares a cash dividend, retained earnings is

Decreased by the amount of the dividend on the date of declaration

A stock dividend

Does not reduce stockholders' equity. As retained earnings is reduced, common stock increases

Stock dividends and stock splits are not considered

Income to the recipient. Therefore, investors do not record stock dividends at fair market value. They simply reallocated the investment account balance (under either method - cost or equity) over more shares so that value per share decreases

A 5 % stock dividend would

Increase additional paid in capital and decrease retained earnings

A "stock split"

Increases the number of shares. Only the number of shares changes. The capital stock retained earnings do not change. It is not considered a capital or asset distribution

When stock rights are "issued without consideration,

No entry (only disclosure) is made by either the "issuer" or the "recipient." At the time the rights are "exercised" (and the corporation receives a cash inflow), additional paid-in capital would be credited if the purchase price of the stock exceeded the par value (which is usually the case). Retained earnings is not affected because this is a "capital" transaction, not an "operations" transaction

Use FMV asset (not cost) to reduce retained earnings when

Property dividend is declared. The cost of asset will be adjusted to FMV (difference treated as "gain or loss on disposal of asset") when a property dividend is declared. Retained earnings is reduced for both cash and property dividends

Property dividends are

Recorded at "fair value." Retained earnings are "decreased" when property dividends are "declared."

By definition, a liquidating dividend is one in which

The company is returning a portion of capital originally contributed to the company in excess of retained earnings. A pure liquidating dividend implies there is no retained earnings left to decrease

The date of declaration is

The date the board of directors formally approves a dividend. A liability is created (dividends payable), and retained is reduced (debited)

When collectibility is reasonably assured,

The excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as additional paid-in capital when the subscription is recorded

A property dividend is recorded at

The fair value of the property to be distributed. The property has to be adjusted to fair value with the adjustment affecting earnings for the period. Additional paid-in-capital is not affected

A property dividend should be recorded in retained earnings at

The property's market value at date of declaration

A stock dividend (less than 20-25% of the stock outstanding)

Transfers the FMV of the stock dividend at declaration date from retained earnings to capital stock and paid-in capital.

A company issued rights to its existing shareholders without consideration. The rights allowed the recipients to purchase unissued common stock for an amount in excess of par value. When the rights are issued,

the common stock and additional paid in capital accounts will only increase if the rights are exercised. No entry is made when the rights are issued sine no consideration is given