Question

10- ZIP Company owns 37,000 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 148,000 common shares outstanding. On April 15, 2018, the date of declaration, PIK stock had a par of $5 per share, a book value of $11.7 per share, and a fair value of $16.7 per share. Required: Prepare any necessary journal entries. The shares were distributed on May 15, 2018, to stockholders of record on May 1, 2018. (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.

Answer 1

Solution:

1. 15-Apr-2018

Investment in PIK common stock ............ $185,000

Gain on investment ........................................ $185,000

37,000 x ($16.7 - $11.7)

To record appreciation of investment

2. Retained earnings ..................... $617,900

Property dividend payable ............... $617,900

To record declaration of property dividend

3. 1-May-18

No entry would be recorded on date of record

4. 15-May-18

Property dividend payable .............. $617,900

Investment in PIK common stock ............. $617,900

To record payment of property dividend