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:

Transactions

Financial events that result in changes to the financial position of a company, such as sales, purchases, and payments.

Equipment

Long-term assets that are used in the production of goods and services; these are tangible in nature.

Accounts Receivable

Obligations of customers to pay a company for goods or services that have been dispensed but remain unpaid.

Journalize

The process of recording transactions in a company's journal, marking the first step in the accounting cycle.