Question

A corporation with common stock outstanding declares a nontaxable dividend payable in rights to subscribe to common stock on June 30 of the current year. Each right entitles the holder to purchase one share of stock for $90. One right is issued for every share of stock owned. Nexsen owns 100 shares of stock purchased ten years ago for $4,500. At the time of the distribution of the rights, the market value of the common stock is $135 per share, and the market value of the rights is $18 per right. Nexsen receives 100 rights. On September 30, he exercises 75 of the rights and sells the remaining 25 rights for $22 per right. If required, round your answers to two decimal places.
If Nexsen does not allocate his original stock basis to the rights, his basis of the new stock is $__________ . The holding period of the new stock begins on the date . The sale of the rights produces capital gain of $________

Answer 1

Answer:

Nexsen new stock basis is $82.67

The holding period of new stock begin on the date new stock was purchased.

The sale of rights produce capital gain of $550

Explanation:

Sale price of the right stock:

Purchase price of right stock is 75 stocks * $90 = $6,750

Less: Selling price of right stock is 25 stocks * $22 = $550

Total cost of right stock is $6,200

No of right stock purchased 75

Cost per stock is $6,200 / 75 = $82.67