Question

Cole Inc. owns shares of Marlin Corporation stock. At December 31, 2017, the securities were carried in Cole’s accounting records at their cost of \(875,000, which equals their fair value. On September 21, 2018, when the fair value of the securities was \)1,200,000, Cole declared a property dividend whereby the Marlin securities are to be distributed on October 23, 2018, to stockholders of record on October 8, 2018. Prepare all journal entries necessary on those three dates.

Short answer

The Equity investment should be credited by $1,200,000.

Step-by-step solution

Meaning of Dividend

Shareholders who own stock in a company are eligible for dividends from the profit made by the company. The dividend amount depends upon the number and type of share a shareholder owns.

Preparing Journal Entries

Date	Particular	Folio	Debit $	Credit $
September 21	Equity Investment A/c		325,000
	Unrealized holding Gain or Loss income ($1,200,000-$875,000) A/c.			325,000
	To record the issue of equity investment
	Retained Earnings A/c.		1,200,000
	Property Dividends Payable			1,200,000
	To record the payment of dividend
October 08	No Entry
October 23	Property Dividends payable A/c.		1,200,000
	Equity Investments A/c.			1,200,000
	To record the payment of dividend