If a Stock Dividend Is Taxable, the Shareholder's Basis in the Newly

question 19

True/False

If a stock dividend is taxable, the shareholder's basis in the newly received shares is equal to the fair market value of the shares received in the distribution.

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Definitions:

Law of Diminishing Returns

The principle that as the level of investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Marginal Cost

The cost of producing one additional unit of a good or service.

Average Total Cost

The total cost of production divided by the quantity produced, indicating the cost effectiveness of producing goods.

Marginal Cost Increases

The rise in the cost to produce one additional unit of a good or service.