Kelly owns 500 shares of Boston Corporation common stock which was purchased on March 20, 2000, for $70,000. On August 8 of the

Question

3 years ago

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Kelly owns 500 shares of Boston Corporation common stock which was purchased on March 20, 2000, for $70,000. On August 8 of the

current year, she receives a distribution of 500 stock rights. Each stock right has a $10 FMV and the FMV of the Boston common stock is $40 per share. With each stock right, she may acquire on share of Boston common stock for $110.
a. How much gross income must Kelly recognize?
b. What is the basis of each stock right received?
c. If she sells the 100 stock rights for $9,000, what is her gain?
d. If she exercises the 100 stock rights on September 8, what is the basis of the 100 shares she receives and when does the holding period for those shares start?

Business

1 answer:

Gennadij [26K] · Answer 1 · 2022-07-30T06:29:27+03:00

Answer:

a. How much gross income must Kelly recognize?

$0, the distribution will not increase her gross income.

b. What is the basis of each stock right received?

{[(500 x $10)/ (500 x $10 + 500 x $40)] x $70,000} / 500 shares= $14,000 / 500 = $28

c. If she sells the 100 stock rights for $9,000, what is her gain?

gain = $9,000 - (100 x $28) = $6,200

d. If she exercises the 100 stock rights on September 8, what is the basis of the 100 shares she receives and when does the holding period for those shares start?

basis = $2,800 + (100 x $110) = $13,800