Which of the Following Stock Distributions Would Be Tax-Free to the Shareholder

question 17

Multiple Choice

Which of the following stock distributions would be tax-free to the shareholder?

• A)A 2-for-1 stock split to all holders of common stock.
• B)A stock distribution where the shareholder could choose between cash and stock.
• C)A stock distribution to all holders of preferred stock.
• D)A 2-for-1 stock split to all holders of common stock and a stock distribution to all holders of preferred stock are tax-free to the shareholder.

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Definitions:

Normal Account Balances

The typical balance side (debit or credit) of an account based on its accounting function.

Increase Side

In double-entry bookkeeping, the side (debit or credit) of an account that is used to record increases in the account's balance, which varies depending on the account type.

Posting

The act of recording financial transactions in the ledger of a company as part of the accounting process.

Journal

A book or digital record where financial transactions are initially recorded in chronological order.