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.

---

Definitions:

Maximize Utility

The goal of consumers in economic theory, aiming to achieve the greatest satisfaction possible from their resources and choices.

Marginal Utility

The change in satisfaction or utility that an individual gains from consuming an additional unit of a good or service.

Rock Concerts

Rock concerts are live music performances by rock bands or solo artists, characterized by energetic performances and, often, loud music.

Colas

Cost-of-living adjustments (COLAs) are automatic adjustments made to salaries, wages, or benefits to counteract the effects of inflation.