El Toro Corporation Declared a Common Stock Distribution to All

question 27

Multiple Choice

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive one share of El Toro stock for each two shares of stock they already own. Raoul owns 300 shares of El Toro stock, with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

• A)$0 dividend income and a tax basis in the new stock of $100 per share.
• B)$0 dividend income and a tax basis in the new stock of $60 per share.
• C)$0 dividend income and a tax basis in the new stock of $40 per share.
• D)$15,000 dividend and a tax basis in the new stock of $100 per share.

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Definitions:

Wage Rate

Wage Rate is the standard amount of compensation for labor, paid on an hourly, daily, or piecework basis.

Labor Hired

The process of employing individuals to perform various tasks within a business or organization.

Inputs Employed

The resources, including labor, capital, and materials, used in the production of goods and services.

Additional Revenues

Income received that is above and beyond the standard or expected revenue streams.