Townsend Corporation Declared a 1-For-1 Stock Split to All Common

question 2

Essay

Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31, 20X3. Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000. The total fair market value of the stock distributed was $500,000. Regina Williams owned 1,000 shares of Townsend common stock with a tax basis of $200 per share ($2,000,000 total). The fair market value of the common stock was $300 per share on December 31, 20X3. What is Regina's income tax basis in the new and existing common stock she owns in Townsend, assuming the distribution is tax-free?

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Definitions:

Activity Rates

Metrics used in activity-based costing to allocate costs to products or services, based on activities that drive costs instead of traditional cost drivers like direct labor hours.

Factory Overhead Budget

A factory overhead budget estimates the total costs of all indirect manufacturing expenses expected during a specific period.

Direct Labor Hours

The total time workers spend directly manufacturing a product or providing a service, used in costing and operational efficiency analysis.

Fabrication Department

A division within a manufacturing facility where raw materials are assembled or processed into finished goods.