Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below] Badger Corporation declared a stock distribution to all shareholders of record on March 25 of this year. Shareholders will receive one share of Badger stock for each 10 shares of stock they already own. Madison Cheesehead owns 1,000 shares of Badger stock with a tax basis of $100 per share. The fair market value of the Badger stock was $110 per share on March 25 of this year. (Leave no answer blank. Enter zero if applicable.) c. How would you answer parts (a) and (b) if Badger offered shareholders a choice between receiving one additional share of Badger stock for each 10 Badger shares held or receiving $120 cash in lieu of an additional share of stock? Answer is not complete. If she takes the Stock Cash Taxable dividend income $12,000 12,000 Income tax basis per share of new shares

Explanation / Answer

Income tax basis per share of new shares:-

When receives stock - Tax basis in the stock she receives will equal to its fair market value i.e. (1,000/10)*110 = $ 11,000

When receives cash - In this case, she would be taxed on the amount of cash received i.e.(120*10) = $1,200

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