ZIP Company owns 39,000 shares of the common stock of PIK Company. ZIP decided to divest itself of this investment by distributing the PIK shares in the form of a property dividend. The dividend ratio is one share of PIK for every four shares of ZIP common held by shareholders. ZIP has 156,000 common shares outstanding. On April 15, 2021, the date of declaration, PIK stock had a par of $5 per share, a book value of $11.9 per share, and a fair value of $16.9 per share. Required: Prepare any necessary journal entries. The shares were distributed on May 15, 2021, to stockholders of record on May 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer and Explanation:

Journal Entries  are as follows for the given data:

15-4-2021 Investment in PIK Common stock A/c Dr.   $195,000

 39,000 × (16.9 - 11.9 ) = $195,000

      To Gain on Investment A/c   $1,95,000

              (To record apprentice of investment)

15-4-2021 Retained earnings A/c Dr.   $6,59,100

           (156,000 ÷ 4 × 16.9) = 659,100

                To Property Dividend Payable A/c  $659,100

                (To record declaration of property dividend)

01- 05-2021  No journal entry required

15-5-2021  Property dividend payable A/c  Dr.     $6,59,100

    To Investment in PIK common stock A/c      $6,59,100

                (To record payment of property dividend)

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