What are the tax consequences to Euclid from the following independent events.

In your computations, do not round intermediate division. If required, round the per share answer to two decimal places. Round all other answers to the nearest dollar.

a. Euclid bought 500 shares of common stock five years ago for $122,000. This year, Euclid receives 20 shares of common stock as a nontaxable stock dividend.

As a result of the stock dividend, Euclid's per share basis is $ _.

b. Assume instead that Euclid received a nontaxable preferred stock dividend of 20 shares. The preferred stock has a fair market value of $12,200 and the common stock, on which the preferred is distributed, has a fair market value of $183,000. Do not round intermediate division.

After the receipt of the stock dividend, the basis of the preferred stock is $ , and the basis of the common stock is $____ .

Question

contestada

Respuesta :

temmydbrain temmydbrain · Answer 1 · 2020-04-07T06:41:56+02:00

Answer:

Check the explanation

Explanation:

(a)

As a result of stock dividend, Euclid's per share basis is $148

500 shares of common stock for a total value of $122000

So, per share value = ($122000 / 500 shares) = $244 per share

(b)

After the receipt of stock dividend, the basis of preferred stock is $4625 and the basis of common stock is $69375

Fair market value of preferred stock = $12,200

Fair market value of common stock = $183000

Total = ($12,200+ $183000) = $195,200

The basis of preferred stock = [($12200 / $195,200) X $122000] = $7625

The basis of common stock = [($183000 / $195,200) X $122000] = $114,375