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:

Unit of Labor

A measurement in economics referring to one hour of work or its equivalent output by a worker.

Unit of Capital

The smallest divisible amount of capital that can be invested in or allocated to a project or investment.

Stamping Press

A machine used in manufacturing to shape or cut materials by deforming them with a die and high pressure.

Production Costs

Represents the total expenses incurred in the manufacturing of a product, including materials, labor, and overhead.