Question

KIM Corporation owned 50,000 shares of SHIN Corporation. These shares were purchased in 2014 for $550,000....

KIM Corporation owned 50,000 shares of SHIN Corporation. These shares were purchased in 2014 for $550,000. On November 15, 2018, KIM declared a property dividend of one share of SHIN for every ten shares of KIM held by a stockholder. On that date, when the market price of SHIN was $25 per share, there were 240,000 shares of KIM outstanding. What gain and net reduction in retained earnings would result from this property dividend?

a.

Gain                                     Net Reduction in Retained Earnings

$24,000                              $   576,000
b.

Gain                                     Net Reduction in Retained Earnings

$336,000                            $   264,000
c.

Gain                                     Net Reduction in Retained Earnings

$400,000                            $   144,000
d.

Gain                                     Net Reduction in Retained Earnings

$600,000                            $   24,000
Business   Accounting   
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Answer #1
Number of SHIN Shares to be distributed                    24,000 =240000/10
Market Value of SHIN share to be distributed $ 600,000 =24000*25
Cost of SHIN 24,000 shares to be distributed $ 264,000 =550000*24000/50000
Gain from this property dividend $ 336,000 =600000-264000
Net Reduction in Retained earnings $ 264,000 =600000-336000
Correct answer is option b .
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