hard · Financial Accounting stockholders-equity
Coral Inc has 100,000 common shares outstanding. On 6/30 it declares and distributes a property dividend of marketable securities (available-for-sale-type equity investment carried at $400,000, fair value $700,000 on declaration date). By the 7/15 distribution date fair value has fallen to $650,000.
What is the net effect of these events on Coral's retained earnings?
- Retained earnings decreases $700,000 (the declaration-date fair value of the dividend), with the $50,000 later decline recognized in earnings, not retained earnings directly.
- Retained earnings decreases $400,000, the original carrying amount of the securities distributed, because property dividends are recorded at cost, not fair value
- Retained earnings decreases $650,000, the distribution-date fair value, because the property dividend is measured only when the asset actually finally leaves the company
- Retained earnings decreases $400,000 net of remeasurement, reflecting a $300,000 dividend charge with no gain ever recognized on this nonreciprocal transfer of appreciated property
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