In short
A property dividend distributes noncash assets, such as investments in another company, to shareholders. The asset is first remeasured to fair value at the declaration date, with a gain or loss recognized, and the dividend is recorded at that fair value.
Key takeaways
- Retained earnings is reduced by the asset's fair value, not its carrying amount.
- Between declaration and distribution, a dividend payable is reported.
- A scrip dividend, by contrast, is a promise to pay later in cash.
Example
Shares carried at $70,000 with a fair value of $100,000: recognize a $30,000 gain and a $100,000 dividend.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company has net income of $600,000 and paid $50,000 in dividends on cumulative preferred stock during the year, none of which were declared. What amount should be used as the numerator for basic EPS?