Darryl, a Cash Basis Taxpayer, Gave 1,000 Shares of Copper

question 12

Multiple Choice

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2018. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2018.

• A) The daughter must recognize the income because she owned the stock when the dividend was declared and she received the $2,000.
• B) Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes.
• C) Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year.
• D) Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend.
• E) None of these.

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Definitions:

Lessor

An entity that leases property or equipment to a lessee in exchange for rental payments.

Conditional Sales Agreement

An agreement where the sale is contingent on meeting specific conditions, such as the buyer making all payments as agreed.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, giving a snapshot of its financial condition and liquidity.

Payment Schedule

A plan that outlines the dates and amounts for payments due over a period.