Question

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2020. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, 2020 payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2020.How does this information impact who must recognize the dividend as income?
A. Darryl must recognize the $1,000 dividend as his income because he knew the dividend would be paid.
B. Darryl must recognize $750 of the dividend because he owned the stock for three fourths of the year.
C. Darryl must recognize the income of $1,000 because he constructively received the $1,000.
D. The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000.
E. None of the above

Answer 1

Answer:

D. The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $1,000. (or $2,000?)

Explanation:

The daughter possessed the bond when the dividends were declared and she also collected the $2,000 dividends. An investor must recognize revenue when the right to receive the dividend is established by the company, in other words, when the dividend was recorded.