 and welcome to this session. This is Professor Farhad in which we would look at an example that deals with property dividend. Most of the time, and what I mean by most, 99% of the time in the real world the company will pay dividend in cash. Sometime they might pay dividend using property and when they do so usually it's investments, securities of other companies. Let's take a look at an example that illustrates this concept. Adam owns shares of Microsoft stock. At December 31st those securities were carried in Adam's book at 1 million which was equal to the fair value. So we're going to keep it simple as of December 31st of year X1. March 21st, 20 X2 at the beginning of the spring the fair value of those securities went to 1.3 million and what happened at this point Adam declared dividend that is property dividend in nature. So Adam decided to distribute those dividend to the shareholders. Adam to distribute the dividend on April 1st to stockholders on record April 1st. So if you own Adam shares April 1st you will get the dividend on April 4th and the declaration date was March 21st. So what do we have to do? First we have to adjust those investment, those securities which is Microsoft stocks to market. Therefore we debit equity investment 300,000. We credit unrealized holding gain income of 300,000. So simply put the first thing is you mark those securities to market. Well then we're going to go ahead and prepare the journal entries that's needed for the dividend. We debit retained earnings which is we're going to reduce retained earnings by 1.3 million and we're going to increase property dividend payable because we are paying dividend and this happens on March 21st X2 which is the declaration date. Then on April 1st which is the records date we don't make an entry. On the records date what we do is we review our record to determine who owns the stock on April 1st in order to distribute those securities to them and on the on the distribution date let's not call it the payment date. We're going to debit the liability property dividend payable and we are going to credit equity investments. Simply put we're going to distribute to them shares of Microsoft stocks. We're not paying them cash we are using the stocks. Now think about it for a moment. Why do we have to mark the investment to market? Well think about it. What's the other alternative? The other alternative is to sell those shares, sell and cash them out. If you sold them you will receive 1.3 million. Therefore when you distribute them you have to reduce your retained earnings by the fair value. So whether you sold them or not in other words whether you sold them and realized the gain or if you kept them but you want to distribute them it's as if you have sold them. Therefore you have to recognize the gain then you distribute the shares rather than the cash and this is how property dividend work. What I'm going to do I'm going to invite you to go to farhatlectures.com and work multiple choice through false questions. If you're not a subscriber go ahead and subscribe invest in yourself. Your education is worth it. Good luck study hard and of course stay safe.