15-12

Question 1

Declaring dividiend from an acount that has FV-OCI

(1st entry)

Answer 1

1. Update the value of the Investment:

dr. FV-OCI Investments ………………….23,280
cr. Unrealized Gain or Loss - OCI…………23,280
(5,000* shares X $16) $80,000 (fair value of the shares)
Less: carrying amount : 56,720**
$23,280
*50,000 shares ÷ 10 = 5,000 shares
**([$68,400 + $22,350] ÷ 8,000 shares) X 5,000 shares

There was a balance of 22,350 in FV-OCI related to these shares

Question 2

Record the declaration of the dividends:

(2nd entry)

Answer 2

dr. Retained Earnings………………..80,000
cr. Property Dividends Payable…..80,000

That’s $16 x 5,000 as $16 is the fair value of the share on the date of declaration

The dividend will be paid from FV-OCI Investment account:

dr. Property Dividends Payable ….80,000

cr. FV-OCI Investments…. 80,000

Question 3

Crystalizing the transaction (declaring property dividends)

(3rd entry)

Answer 3

dr. Unrealized Gain or Loss - OCI………..37,250
cr. Gain on Distribution..………..37,250
(5,000* shares X $16) = $80,000
Less: cost of 5,000 shares
_ * 42,750***_
The actual ‘gain’ *$37,250 *
**($68,400 ÷ 8,000 shares) X 5,000 shares]

68,400 is the ‘real’ price (the price we paid, wihtout taking into account the changes in FV-OCI

Question 4

The property dividend was distributed
on April 21 when the fair value of the Waterloo shares was S18.50 (instead of $16 when it was declared)

Answer 4

The changes in fair value of the Waterloo Corp. shares after dividend declaration are ignored for accounting purposes. The legal liability is fixed at the time the dividend is declared and is recorded at this point based on the fair value on that date.

Question 5

On July I, the company declared a 5% stock dividend to the remaining common shareholders. The stock dividend
was distributed July 22.

Answer 5

Retained Earnings…………………………..60,000
Common Stock Dividend Distributable …60,000
(50,000 X 5% = 2,500 shares @ $24 = $60,000)

This problem states the market value of the dividend ($24)- just check the dates to make sure you get the correct price.

So, for Stock dividend, you always take the market value, regardless of the book value. Book value is used when you repurchase you own shares.

Question 6

Paying stock dividends

Answer 6

1. First of all, don’t forget to pay them! (not just declaring)
2. Don’t use CASH, credit Common Shares:

Common Stock Dividend Distributable …….60,000
Common Shares……………………60,000

Question 7

A shareholder, in an effort to persuade Vos to expand into her city, donated to the company a plot of land with
an appraised value of$42,000.

Answer 7

Land ……………………………………….42,000
Contributed Surplus – Donated Land…42,000

(this account belongs in S/E) - be careful if there was already a balance there so you add it up when you prepare the statement

Question 8

Preparing the Shareholder Equity statement

Answer 8

* be careful about the change in common shares # and value as a result of distributing stock dividends

*don’t forget **CONTRIBUTED SURPLUS **(comes before R/E)

• R/E = B/B + net income - dividends

* ACUMULATED OTHER COMPREHENSIVE INCOME => ADJUST FOR FAIR VALUE:

8,000 shares – 5,000 shares distributed = 3,000 shares remaining
Fair value = 3,000 shares X $18.50 $55,500
Cost = ($68,400 / 8,000) X 3,000 _ (25,650)_
$29,850

The change in the value of the Asset (property shares) is reflected on the B/S