Mike's Basis in His Stock in Tan Corporation Is $75,000

question 232

Multiple Choice

Mike's basis in his stock in Tan Corporation is $75,000. He receives nontaxable stock rights (fair market value of
$20,000) when the value of the stock is $100,000. What is the basis for the stock rights?

• A) $0.
• B) $12,500.
• C) $15,000.
• D) The basis is $0 unless the taxpayer elects to allocate a portion of the cost of the stock to the rights.
• E) None of the above.

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Definitions:

Effective Annual Yield

The return on an investment expressed as an annual rate, taking into account the effect of compounding interest.

Selling Today

The act of disposing of an asset or security in the current market with the intention of realizing its current value.

Par-value

The face value of a bond or stock, as stated by the issuing company, which is typically the amount paid out at maturity for bonds.

Yield To Maturity

The total return anticipated on a bond if the bond is held until it matures, taking into account both current income and capital gains or losses.