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On May 1, Year 3, the board of directors of Boxer Industries declared a property dividend of 4,500 shares of King Corporation common stock that Boxer had purchased as an investment (book value: $58,500). The market value of the 4,500 King shares was $121,500 (or $27 per share) on the date of declaration and $180,000 (or $40 per share) on the date of distribution. What amount will be debited to Retained earnings in the journal entry recorded on the declaration date?

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Answer: These could be explained as follows.

Explanation: The amount to be debited in retained earnings on the declaration date will be $121,500.

Journal entries will be as follows -

1. Investment A/C Dr.   $63,000

     To revaluation A/C $63,000

( Being the value of investment increased)

2. Retained earnings A/C Dr.   $121,500

     To dividend payable  A/C   $121,500

       ( Being dividend declared)

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