Mike Bradley & Company, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory instead of declaring its usual cash dividend. The inventory's book value exceeded its fair value. The excess is:
A) Reported as a direct reduction of shareholders' equity.
B) Reported as other comprehensive income.
C) Reported as a loss.
D) Not reported.

Question

Quizplus · Accepted Answer

When a company distributes a property dividend from overstocked inventory where the book value exceeds the fair value, it is considered a loss. This loss should be reported in the company's income statement. Therefore, the excess inventory cannot be reported as a direct reduction of shareholders' equity or other comprehensive income. It cannot be ignored and not reported either.

Mike Bradley & Company, a Family-Owned Corporation, Declared and Distributed