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?

$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

=

= 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

=

= $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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