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Stock Dividends and Rights

1. Nontaxable stock dividends result in:
a. A higher cost per share for all shares than before the stock dividend.
b. A lower cost per share for all shares than before the stock dividend.
c. An increase in the total cost of the old and new stock combined.
d. A decrease in the total cost of the old and new stock combined.
e. None of the above.

2. Amy received nontaxable stock rights on February 3, 2007. She allocated $5,200 of the $40,000 basis for the associated stock to the stock rights. The stock rights are exercised on October 2, 2007. The exercise price for the stock is $18,000. What is the taxpayer's basis for the acquired stock?
a. $0.
b. $12,800.
c. $18,000.
d. $23,200.
e. None of the above.

3. Carol received nontaxable stock rights on February 14, 2007. She allocated $8,000 of the $39,000 basis of the associated stock to the stock rights. The stock rights expire on August 14, 2007. What is Carol's recognized loss on the expiration of the stock rights?
a. $0.
b. $5,850.
c. $8,000.
d. $39,000.
e. None of the above.

4. Shontelle received a gift of income-producing property with an adjusted basis of $50,000 to the donor and fair market value of $40,000 on the date of gift. Gift tax of $6,000 was paid by the donor. Shontelle subsequently sold the property for $45,000. What is the recognized gain or loss?
a. $5,000.
b. $4,000.
c. ($5,000).
d. ($11,000).
e. None of the above.

5. In 2007, Chee gives stock (basis of $36,000; fair market value of $30,000) to his nephew and pays a gift tax of $3,000 on the transfer. The nephew's basis in the stock is:
a. $0 for gain and $0 for loss.
b. $30,000 for gain and $30,000 for loss.
c. $36,000 for gain and $30,000 for loss.
d. $36,300 for gain and $30,300 for loss.
e. None of the above.

Solution Preview

1. The answer is B. The non taxable stock dividend can be common on common or preferred on common and either way the basis per share of the stock decreases.

2.Amy will add the basis assigned to the rights plus the exercise price to get her basis for the stock acquired. That ...

Solution Summary

This solution in question and answer format discusses Stock Rights and Dividends.

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