11. Wonder Corporation declared a common stock dividend to all shareholders of r

Question

11. Wonder Corporation declared a common stock dividend to all shareholders of record on September 30, 2013.

Shareholders will receive 3 shares of Wonder stock for each 5 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 hte Wonder stock was $180.00 per share on September30, 2013. What are the tax consequences of the stock dividend to Diana?

Multiple Choice

A. $0 dividend income and a tax basis in the new stock of $180.00 per share

B. $0 dividend income and a tax basis in the new stock of $67.50 per share

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

D. $10.800 dividend and a tax basis in the new stock of $180.00 per share

Explanation / Answer

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

Existing tax basis = 300 shares * $90=$27,000

New stocks to be issued to Diana as a result of stock dividend,

=300*3/5=180

So total no.of shares after dividend= 180+300=480

So new tax basis per share =27,000/480=$56.25

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