[jeff]

Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend?

a.$33

b.$30

c.$20

d.$22

Source: Wiley Test Bank

Link: https://www.another71.com/products-page/wiley-software/

[Noct]

C.

FAR - 79 - 07/2012
AUD - 65, 78 - 11/2012
BEC - 76 - 11/2012
REG - 78 - 01/2013
ETH - 98 - 01/2013

Material: Wiley books

[zi007ad]

C

1000 shares *10% = 100 then = 1100 share

divide the basis $22,000 by 1100 shares = $20

*COLORADO*
REG: 58,41,74,74,74,74,77
BEC: 67,76*,79
FAR: 62,68,60,75
AUD: 76*,64,66,81
* Expired

[jeff]

C. This answer is correct because the requirement is to determine the basis for each share of common stock after the receipt of a 10% common stock dividend. Generally the receipt of a common stock distribution on common stock is excluded from gross income. As a result, the cost of the original shares is divided by the total shares owned (including the dividend shares) to determine the basis for each share. Here, the $22,000 cost of the original shares would be divided by the total shares owned after the stock distribution (1,000 + 100) to arrive at a basis of $20 per share.

[Author]

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