El Toro Corporation Declared a Common Stock Dividend to All

question 52

Multiple Choice

El Toro Corporation declared a common stock dividend to all shareholders of record on June 30, 20X3. Shareholders will receive 1 share of El Toro stock for each 2 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 dividend to Raoul?

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

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Definitions:

Static Evaluation

The tendency to view people or situations as unchanging despite evidence to the contrary.

Polarization

The division into two sharply contrasting groups or sets of opinions or beliefs.

Referents

Objects, events, or concepts that words or phrases denote or stand for in communication.

Vocalizations

The production of sounds with the voice, as a form of communication among humans or other animals.