If a Nontaxable Stock Dividend Is Received and Is Not

question 35

Multiple Choice

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

• A)based on the par value of the stock.
• B)equally to all shares owned after the stock dividend.
• C)based on relative fair market values at the time of the stock dividend.
• D)none of the above.

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Definitions:

Gross Margin

The difference between revenue and the cost of goods sold, which indicates the profitability before administrative, sales, and other expenses.

Financial Leverage

A difference between the rate of return on assets and the rate paid to creditors.

Issuing Common Stock

The process by which a company sells new shares of its common stock to investors, thereby raising equity capital.

Return On Equity

A measure of financial performance calculated by dividing net income by shareholder equity, indicating how effectively a company uses investments to generate earnings.