Thistle Corporation Declares a Nontaxable Dividend Payable in Rights to Subscribe

question 95

Essay

Thistle Corporation declares a nontaxable dividend payable in rights to subscribe to common stock. One right and$25 entitle the holder to subscribe to one share of stock. One right is issued for each share of stock held. Annette, a shareholder, owns 200 shares of stock that she purchased five years ago for $3,000. At the date of distribution of the rights, the market values were $50 per share for the stock and $25 for a right. Annette received 200 rights. She exercises 160 rights and purchases 160 additional shares of stock. She sells the remaining 40 rights for $1,080. What are the tax consequences to Annette?

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Definitions:

GDP

Gross Domestic Product represents the aggregate value, in monetary or market terms, of every final good and service created inside the confines of a country during a designated period.

Individual Transferable Quota (ITQ)

A policy tool used in fisheries management, allowing fishing rights to be allocated to individuals or entities, which can then be traded.

Market Price

The market price is the current price at which a good or service can be bought or sold in a marketplace.

Tragedy of the Commons

The tragedy of the commons describes a situation in which individual users, acting independently according to their own self-interest, deplete or spoil shared resources, even as it is clear that it is not in anyone's long-term interest for this to happen.