Question

When a property dividend is declared, a gain or loss is recognized for

O the fair value of the asset distributed.
O the net book value of the dividend.
O the difference between the fair value and the book value of the assets distributed.
O the book value of the assets distributed.

Answer 1

A gain or loss is recognized for the difference between the fair value and the book value of the assets distributed when a property dividend is declared.

Step-by-step explanation:

When a property dividend is declared, a gain or loss is recognized for the difference between the fair value and the book value of the assets distributed.

This means that the value of the property being distributed is compared to its book value, which is its value on the company's accounting records. If the fair value is higher than the book value, a gain is recognized. If the fair value is lower, a loss is recognized.

For example, let's say a company decides to distribute land as a property dividend. The land has a book value of $100,000, but its fair value is $150,000. In this case, the company would recognize a gain of $50,000.