A Shareholder's Basis in Stock Received in a Sec

question 7

Multiple Choice

A shareholder's basis in stock received in a Sec. 351 transaction is

• A)increased by the gain recognized by the corporation.
• B)decreased by the gain recognized by the transferor.
• C)decreased by liabilities assumed by the corporation.
• D)increased by the FMV of boot received from the corporation.

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Definitions:

Cost of Equity

A theoretical payment made by a corporation to its stockholders to reward them for the risk involved in investing their funds.

Dividends

Money that a corporation gives to its members of shareholding, often coming from the profits of the company.

Beta

A measure of a stock's volatility in relation to the overall market; a higher beta indicates greater volatility and risk.

Preferred Shares

A type of stock that provides a fixed dividend before any dividends are paid to common stockholders and typically has no voting rights.