Question

"A customer has purchased 1,000 shares of ABC stock at $44 per share, paying a commission of $1.00 per share for the transaction. ABC stock declares a 20% stock dividend. When the dividend is paid, the tax status of the investment is:"

Answer 1

Answer:

1,200 shares held at a cost basis of $37.50

Explanation:

Since there are 1,000 shares are purchased

and the stock dividend is 20%

So the number of shares after the dividend is  

= 1,000 × (1 + dividend percentage)

= 1,000 × (1 + 0.20)

= 1,000 × 1.20

= 1.200

And, the price per share is

= $44 + $1

= $45

So, the cost basis would be

= $45 ÷ 1.20

= $37.50

hence, the tax status of the investment is 1,200 shares held for cost at $37.50 basis