Bat Corporation Distributes Stock Rights with a $20,000 FMV to Its

question 73

Multiple Choice

Bat Corporation distributes stock rights with a $20,000 FMV to its common stock shareholders. The $20,000 value of the stock rights at the time of distribution is less than 15% of the value of the underlying stock. Which of the following statements is true?

• A) The holding period for the rights begins on the day the rights are distributed in all cases.
• B) A shareholder cannot allocate any basis to the rights.
• C) A shareholder must allocate basis to the rights based on the relative FMVs of the stock and the rights.
• D) The basis in the rights is zero unless a shareholder makes a valid election to allocate basis to the rights.

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Definitions:

Tradable Permits

A system where rights to emit pollution or other substances are given a market value and can be bought and sold.

Environmental Protection Agency

A U.S. federal agency responsible for creating and enforcing regulations to protect the environment and public health from pollution and hazardous substances.

Clean Air

The condition of the atmosphere when it is free from pollutants, contaminants, and other harmful substances.

Network Externality

The effect that an additional user of a good or service has on the value of that product to others, often increasing the utility as more people use it.