On January 30, Juan Receives a Nontaxable Distribution of Stock

question 39

Multiple Choice

On January 30, Juan receives a nontaxable distribution of stock rights from Platinum Corporation. Each right entitles the holder to purchase one share of stock for $40. One right is issued for every share of stock owned. Juan owns 100 shares of stock purchased two years ago for $4,000. At the date of distribution, the rights are worth $1,000 (100 rights at $10 per right) and Juan's stock in Platinum is worth $5,000 (or $50 per share) . On December 1, Juan sells all 100 stock rights for $12 per right. How much gain does Juan recognize on the sale?

• A) $1,200
• B) $533
• C) $400
• D) $0
• E) None of the above

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Definitions:

Economy's Income

The total earnings from production and investment activities within an economy over a specific period, including wages, profits, and investment income.

Market Equilibrium

A state where the quantity supplied and the quantity demanded of a product are equal at a certain price level.

Stock

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Wage Determination

The process through which wages for work are established, often influenced by factors such as labor supply and demand, bargaining power, and government policy.