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McCaffrey Corporation owned 15,000 shares of Harper Corporation's $5 par value common stock. These shares were purchased in 2015 for $326,000. On May 4, 2017, McCaffrey declared a property dividend of one share of Harper for every twenty shares of McCaffrey stock held by a stockholder. On that date, when the market price of Harper was $34 per share, there were 280,000 shares of McCaffrey outstanding. What net reduction in retained earnings would result from this property dividend?

Respuesta :

Answer:

$304,267

Explanation:

Given:

Shares owned by McCaffrey Corporation = 15,000

Purchasing cost of in 2015 of shares =  $326,000

market price of Harper = $34 per share

shares of McCaffrey outstanding = 280,000

Number of shares issued as property Dividend

= [tex]\frac{\textup{280,000}}{\textup{20}}[/tex]

= 14,000 shares.

Now,

Market price of shares issued as property Dividend

= 14000 × $34

= $476,000

also,

the Cost of 14000 shares of Harper corporation

= [tex]\frac{\textup{326,000}}{15000\times14000}[/tex]

= $304,267

Therefore,

The Net gain = $476,000 - $304,267

or

The net gain = $171,733

Property Dividend = $ 476,000

Hence,

the net reduction in retained earning

= $171,733 - $476,000

= $304,267

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