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Question 11BE

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Intermediate Accounting (Kieso)
Found in: Page 811

Short Answer

Cole Inc. owns shares of Marlin Corporation stock. At December 31, 2017, the securities were carried in Cole’s accounting records at their cost of $875,000, which equals their fair value. On September 21, 2018, when the fair value of the securities was $1,200,000, Cole declared a property dividend whereby the Marlin securities are to be distributed on October 23, 2018, to stockholders of record on October 8, 2018. Prepare all journal entries necessary on those three dates.

The Equity investment should be credited by $1,200,000.

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Step by Step Solution

Meaning of Dividend

Shareholders who own stock in a company are eligible for dividends from the profit made by the company. The dividend amount depends upon the number and type of share a shareholder owns.

Preparing Journal Entries

Date

Particular

Folio

Debit $

Credit $

September 21

Equity Investment A/c

325,000

Unrealized holding Gain or Loss income

($1,200,000-$875,000) A/c.

325,000

To record the issue of equity investment

Retained Earnings A/c.

1,200,000

Property Dividends Payable

1,200,000

To record the payment of dividend

October 08

No Entry

October 23

Property Dividends payable A/c.

1,200,000

Equity Investments A/c.

1,200,000

To record the payment of dividend

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