El Toro Corporation Declared a Common Stock Distribution to All

question 86

Multiple Choice

El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive one share of El Toro stock for each two shares of stock they already own. Raoul owns 460 shares of El Toro stock, with a tax basis of $99 per share. The fair market value of the El Toro stock was $139 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

• A)$0 dividend income and a tax basis in the new stock of $139 per share.
• B)$0 dividend income and a tax basis in the new stock of $99 per share.
• C)$0 dividend income and a tax basis in the new stock of $66 per share.
• D)$31,970 dividend and a tax basis in the new stock of $139 per share.

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Definitions:

Rental Cost

The price paid for the temporary use of a good, service, or property owned by another.

Private Investment

Financial resources allocated by individuals or entities into private sector projects or companies aiming to earn returns.

Uncertainty

A situation where the outcomes or variables of a situation are unpredictable, often leading to risk in economic and financial decisions.

International Incident

An event that might cause tension or conflict between nations, often involving diplomatic, military, or political issues.