 Hello and welcome to this session in which we would look at a CPA simulation or an exercise that deal with property dividend. Now a company can pay dividend in many forms such as the most common one is cash. They can pay dividend in terms of property or they can pay stock dividend. In this session we'll focus on property dividend. And what do you mean by property dividend? It means the company has some sort of an asset and they will distribute this asset to the shareholders. Now let's kind of back up a little bit and just to make sure we understand what dividend is. Well the company generates revenues from operating the business incur expenses. And the difference between those two is net income or profit. Now this profit sits in retained earnings basically the profit that we keep. Then at some point the company wants to distribute this profit to the shareholders as dividend. So the point I'm trying to emphasize here is property dividend also comes out of dividend. So if you don't have retained earnings you don't have dividend. You have to have some sort of a profit. Now in this session we'll focus on property. And when they do distribute property usually it's shares of stocks or some sort of an investment that they have. So let's take a look at an example to see what is required, what journal entries are required, when we distribute property dividend. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead start your free trial today no obligation no credit card required. So let's take a look at this example. Adam company owned shares of Apple computers classified as available for sale investment. Adam purchased the shares for 550,000 March 1st. So what we did kind of if we want if we want to keep track of our account we had an equity investment and this equity investment is available for sale and we paid for it 550,000 on March 1st. On September 5th when the fair value of the shares were 650 Adam declared property dividend to distribute all the Apple shares to shareholders on September the 15th for stockholder of record September the 10th. So what we did decided to do Adam decided to distribute those shares to the shareholders. When they made that decision the shares of Apple jumped to 650. So what do we have to do first? Well the shares went from 550 to 650. So when you distribute property the first thing you have to do is to adjust the property to market value. Simply put we have to record a gain of 100,000 which is the difference between 550 and 650. So we're going to go ahead debit the equity investment 100,000 to increase the equity investment and credit unrealized holding gain income statement of 100,000. That's on September 5th we have to market to market then since we declare the dividend the dividend becomes a liability. In other words now we are committed to paying 650,000. We have to debit we have to reduce retained earnings we have to reduce retained earnings for 650 and credit property dividend payable 650,000. So this is the entry that we make on September 5th. So what is different about this entry is adjusting the property to market this could have also would have been a loss it happens to be again but the point is you market to market as if you are going to sell it then those shares will be distributed to shareholders as of as of September the 15th but they have to be owners as of record September the 10th. So what do we do on September the 10th? Once again there's no entry for the date of record September the 10th and the reason is on September the 10th all what we do is we review our record to determine who owns who owns Adam company shares as of September the 10th so they will be compensated on September the 15th. So on September the 15th what we do is we distribute it's not cash it's called the distribution we distribute the the shares the apple shares to our shareholders therefore we remove the liability that we created here we debit the liability and we credit the investment so we credit the investment 650,000 and as a result the investment will go down to zero so the investment is gone the property dividend dividend payable is gone as well and technically what's left really is unrealized holding gain or loss this goes on the income statement and this gets closed eventually to what to retained earnings because unrealized holding gain or loss it's an income statement account it's going to increase retained earnings so what's basically really left is the retained earning of 650 which is a reduction in retained earnings the total reduction because everything else is closed the equity is gone the investment is gone so overall if we notice if you notice what happened is our assets went down which is the assets as equity went down and retained earnings i'm sorry assets went down asset means the equity investment this and i mean the equity the equity investment which is the investment in apple and retained earnings also went down so simply put from a balance sheet perspective if we have assets the investments brought down the asset and on the liabilities and equity side since we debit the retained earnings retained earnings went down so notice a property dividend would reduce assets and would reduce equity it just like to be more specific just like the cash dividend where we reduce assets and we reduce equity why am i keep emphasizing this point the reason i'm emphasizing this point is because at some point we're going to look at stock dividend and we're going to see that stock dividend don't reduces don't reduce equity the stock dividend there is no effect on the assets no effect on the equity so the reason i mentioned this is to differentiate cash dividend and property dividend from stock dividend for now this is what i'm going to discuss what should you do go to far hat lectures and work mcqs true false additional exercises that's going to help you be comfortable with property dividend property dividend is a testable topic whether you are an accounting student a cpa or cma candidate also property dividend it's important to understand for your tax course because in the tax course we have to understand what property dividend is for now all what i can tell you is study hard good luck and stay safe