Zeppo and Harpo Are Equal Owners of the Marx Corporation

question 55

Multiple Choice

Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $25,000 in cash and property worth $50,000 (adjusted basis of $35,000) for 25% of Marx Corporation's stock. What is Groucho's basis in the Marx Corporation stock?

• A)$45,000
• B)$50,000
• C)$60,000
• D)$75,000
• E)$90,000

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Definitions:

Retained Earnings

The portion of net income that is retained by a company rather than distributed to its shareholders as dividends.

Dividends Declared

Profit distributed by a company to its shareholders, typically in the form of cash or additional stock, based on the number of shares owned.

Stock Split

A stock split is an action taken by a company to divide its existing shares into multiple ones to boost the liquidity of the shares, without changing the overall value of shareholders' equity.

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout.