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please show calculations thank you. Ivanhoe Company owned 47000 shares of Sheffield Corp.. These shares were...

please show calculations thank you.

Ivanhoe Company owned 47000 shares of Sheffield Corp.. These shares were purchased in 2014 for $376000. On November 15, 2018, Ivanhoe declared a property dividend of one share of Sheffield for every ten shares of Ivanhoe held by a stockholder. On that date, when the market price of Sheffield was $29 per share, there were 376000 shares of Ivanhoe outstanding. What gain and net reduction in retained earnings would result from this property dividend?

Gain

Net Reduction in

Retained Earnings

$789600

$ 300800

$0          

$1090400

$789600

$ 112800

$0          

$ 300800

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Answer #1

Answer:

Option (A). $789,600, $300,800 is correct.

Calculations:

Basis of each share = $376,000/ 47,000

= $8 per share

Gain per share given = $29 market price - $8 basis in share

= $21 per share

Number of shares given = 376,000/10

= 37,600

Net gain recognized = 37,600 X $21

= $789,600

.

Total amount of distribution = shares given X market price

= 37,600 X $29

= $1,090,400

Reduction in retained earnings = Amount of distribution - gain recognized

= $1,090,400 - $789,600

= $300,800

  

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