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Chapter 15: Question 26Q (page 810)

This comment appeared in the annual report of MacCloud Inc.: 鈥淭he Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property dividends on the Class B common stock, it would be required to pay at least the same dividend on the Class A common stock.鈥� How is a property dividend accounted for in the financial records?

Short Answer

Expert verified

According to Generally Accepted Accounting Principles, property dividends must be reported at fair market value, often not the same as the asset's net book value.

Step by step solution

01

Meaning of Property Dividend

A property dividend is a type of dividend that substitutes property for cash or stock dividends. Despite being a non-monetary payout, property dividends have monetary worth.

02

Explaining Property Dividends financial record

A non-reciprocal transfer of non-monetary assets between a firm and its owners is known as a property dividend. A non-reciprocal transfer of a non-monetary asset to a stockholder or another entity should be reported at the fair value of the item transferred,with a gain or loss recognized at the asset's disposal.

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Most popular questions from this chapter

(Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.

Instructions

  1. What general rule should be applied to determine the amount at which the land should be recorded?
  2. Under what circumstances should this transaction be recorded at the fair value of the land?
  3. Under what circumstances should this transaction be recorded at the fair value of the stock issued?
  4. Assume Martin intentionally records this transaction at an amount greater than the fair value of the land and the stock. Discuss this situation.

For what reasons might a company restrict a portion of its retained earnings?

The following comment appeared in the notes of Colorado Corporation鈥檚 annual report: 鈥淪uch distributions, representing proceeds from the sale of Sarazan, Inc., were paid in the form of partial liquidating dividends and were in lieu of a portion of the Company鈥檚 ordinary cash dividends.鈥� How would a partial liquidating dividend be accounted for in the financial records?

What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?

For what reasons might a corporation purchase its own stock?
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