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.

---

Definitions:

Common Stock

A form of corporate equity ownership, representing a share in the ownership of a company and a claim on a part of its profits.

Treasury Bills

Treasury bills are short-term government securities issued at a discount from the face value and mature at par, used by governments to raise funds to meet short-term financial needs.

Unsystematic Risk

The risk that is unique to a specific company or industry, which can be mitigated through diversification.

Consumer Spending

The total amount of money spent by households in an economy on goods and services, influencing economic growth and business cycle phases.