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:

Restrictive Covenants

Clauses in a contract or agreement that limit certain actions or activities to protect business interests, such as non-compete or confidentiality agreements.

Promises

Declarations or assurances by one party to another agreeing to do or not to do something in the future, which may form the basis of a contract.

Land

A portion of the Earth's surface that includes its soil and anything naturally attached to it, considered as property.

Ceiling Fan

An electrically powered fan mounted to the ceiling of a room, which rotates blades to circulate air and provide cooling.