Question

Bugs McGee receives a 25% nontaxable stock dividend (25 shares) of Roberto Corporation common stock with a fair market value on the date of distribution of $1,000. Bugs previously owned 100 shares of Roberto Corporation common stock which he purchased ten years ago for $8,000.a) The basis per share of the 25 shares of Roberto Corporation stock is:b) The new basis per share of the original 100 shares of Roberto Corporation stock is:

Answer 1

Answer:

a ) The basis per share of the 25 shares of Roberto Corporation stock.

Basis of stock now distributes over 125 shares. Existing basis is $8,000.

Basis of 125 shares = 8,000

Basis of 25 shares = 25 X 8000/125

                               = 1,600

b)  The new basis per share of the original 100 shares of Roberto Corporation stock.

Basis of 100 shares = 100 X 8,000/125

                                 = 6,400

Explanation: