Liquidating dividend cost method Free live chat no registration
The following quarter, Company B reports net income of 0 and announces a dividend.
What journal entries does Company A make to record its proportionate share of Company B's earnings and the cash dividend?
However, companies rarely pay "catch-up" dividends. In other words, a company is unlikely to distribute earnings in the future that it declined to distribute in the past.
So, undistributed earnings rarely qualify for the DRD because their future distribution is not expected.
Monetizing the investment after the DTL has grown large can trigger a large tax bill that (i) must be weighed against the benefits of monetization, and (ii) may limit the investor's strategic options with respect to the disposition of the stake.
PNC Financial faced this dilemma in evaluating monetization options for its sizeable investment in Black Rock.
Cost basis is the original monetary amount paid for shares of a security.
Whether you apply the DRD to deferred taxes on undistributed earnings is a judgment call.
Accountants will generally advise you not to, since applying the DRD to undistributed earnings implies an expectation that those earnings will ultimately be distributed.
Here are some details to help you understand the pros and cons of each method.
It's best to set your cost basis method immediately after you bought or acquired shares of a new investment.