Wilton Corporation has a single class of common stock outstanding. Robert owns 1

Question

Wilton Corporation has a single class of common stock outstanding. Robert owns 100 shares, which he purchased in 2009 for $100,000. In 2015, when the stock is worth $1,200 per share, Wilton declares a 10% dividend payable in common stock. On December 10, 2015, Robert receives ten additional shares. On January 30, 2016, he sells five of the ten shares for $7,000.

How much income must Robert recognize when he receives the stock dividend?

How much gain or loss must Robert recognize when he sells the common stock?

What is Robert’s basis in his remaining common shares? When does his holding period in the new common shares begin?

Explanation / Answer

1. Robert must recognize income when he receives the stock dividend = $12000

2. Gain or loss Robert must recognize when he sells the common stock = 1200*5 – 7000 = (10000

Loss = $1000

3 Robert’s basis in his remaining common shares =

Share in beginning = 100

+ addition = 10

-sale of sahre = 5

Balance share = 105

holding period in the new common shares begin = $125000

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