Wonder Corporation Declared a Common Stock Distribution to All Shareholders

question 65

Multiple Choice

Wonder Corporation declared a common stock distribution to all shareholders of record on September 30, 20X3. Shareholders will receive three shares of Wonder stock for each five shares of stock they already own. Diana owns 300 shares of Wonder stock with a tax basis of $90 per share (a total basis of $27,000) . The fair market value of the Wonder stock was $180 per share on September 30, 20X3. What are the tax consequences of the stock distribution to Diana?

• A)$0 dividend income and a tax basis in the new stock of $180 per share.
• B)$0 dividend income and a tax basis in the new stock of $67.50 per share.
• C)$0 dividend income and a tax basis in the new stock of $56.25 per share.
• D)$10,800 dividend and a tax basis in the new stock of $180 per share.

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Definitions:

Statute of Frauds

A legal principle that requires certain types of contracts, such as those involving real estate or lasting over a year, to be in writing to be enforceable.

Separately Negotiated

Terms, conditions, or agreements that have been individually discussed and agreed upon by the parties involved, rather than applied universally or as part of a standard procedure.

Pre-Printed Terms

Standardized, boilerplate language in a contract, typically not negotiated between parties and often found in form contracts.

E-Sign

The use of electronic signatures to sign documents and agreements, legally recognized as equivalent to handwritten signatures under certain jurisdictions and laws.