Accounting for liquidating dividend
331, a liquidating distribution is considered to be full payment in exchange for the shareholder’s stock, rather than a dividend distribution, to the extent of the corporation’s earnings and profits (E&P).
The shareholders generally recognize gain (or loss) in an amount equal to the difference between the fair market value (FMV) of the assets received (whether they are cash, other property, or both) and the adjusted basis of the stock surrendered.
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The parent company reports the effects of this transaction on its balance sheet.
The Financial Accounting Standards Board created the fair value option to the equity method in 2007.
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When the company receives the cash on the payment date, it records a debit to the cash account and a credit to the dividends receivable account for the payout.