Question

Wonder Corporation declared a common stock dividend to all shareholders of record on September 30, 20X3. Shareholders will receive three shares of Wonder stock for each five shares of stock they already own. Diana owns 300 shares of Wonder stock with a tax basis of $90 per share (a total basis of $27,000). The fair market value of the Wonder stock was $180 per share on September 30, 20X3. What are the tax consequences of the stock dividend to Diana? A. $0 dividend income and a tax basis in the new stock of $180 per shareB. $0 dividend income and a tax basis in the new stock of $67.50 per shareC. $0 dividend income and a tax basis in the new stock of $56.25 per shareD. $10,800 dividend and a tax basis in the new stock of $180 per share

Answer 1

Answer:

C. $0 dividend income and a tax basis in the new stock of $56.25 per share

Explanation:

Existing tax basis

= 300 shares * $90

= $27,000

Latest stocks attributable to stock dividend to be given to Diana,

= 300 * 3/5

= 180

Therefore the total number of shares will be, after dividend,

= 180 + 300

= 480

So new tax basis per share

=27,000 / 480

=  $56.25