Sweetwater Corporation declared a stock dividend to all common stock shareholder
ID: 2426055 • Letter: S
Question
Sweetwater Corporation declared a stock dividend to all common stock shareholders of record on December 31, 20X3. Shareholders will receive 1 share of Sweetwater common stock for each 5 shares of common stock they already own. Pierre Dorgan owns 500 shares of Sweetwater common stock with a tax basis of $150 per share. The fair market value of the Sweetwater common stock was $90 per share on December 31. What is Pierre's income tax basis per share in his new and existing common stock in Sweetwater, assuming the distribution is non-taxable?
Explanation / Answer
total existing shares of pierre dorgan is =500 shares
new shares 500*1/5=100 shares
pierres income tax basis common stock on shares = 150*500
=75,000
less tax 40.% =30000
common stock shars =45000
new shares price less income tax = 100*90
=900.00
000
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