Checkers Corporation Has a Single Class of Common Stock Outstanding

question 4

Essay

Checkers Corporation has a single class of common stock outstanding. Bert owns 100 shares, which he purchased five years ago for $200,000. In the current year, when the stock is worth $2,500 per share, Checkers Corporation declares a 10% stock dividend payable in common stock. Bert receives ten additional shares on December 10 of the current year. On January 25 of next year he sells all ten shares for $30,000.
a)How much income must Bert recognize when he receives the stock dividend?
b)How much gain or loss must Bert recognize when he sells the ten shares he received as a stock dividend?

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Definitions:

Primary Root

The initial root that develops from a germinating seed, giving rise to the root system of a plant.

Hemicellulose

A polysaccharide found in plant cell walls alongside cellulose, providing structural support.

Cellulose

A complex carbohydrate composed of glucose units that form the main constituent of the cell wall in most plants, providing structural support.

Soluble

Capable of being dissolved in a solvent, typically water, to form a solution.