In August,Sunglow Corporation Declares a $4 Dividend Out of E

question 43

Multiple Choice

In August,Sunglow Corporation declares a $4 dividend out of E & P on each share of common stock to shareholders of record on October 1.Elaine and Tom each purchase 100 shares of Sunglow stock on September 1.On September 15,Elaine also purchases a short position in Sunglow.Tom sells 50 of his shares on October 15 and continues to hold the remaining 50 shares through the end of the year.Elaine closes her short position in Sunglow on December 119- With respect to the dividends,which of the following is correct?

• A)Tom will have $200 of qualifying dividends subject to reduced tax rates and $200 of ordinary income.
• B)Elaine will have $400 of qualifying dividends subject to reduced tax rates and $400 of ordinary income (from dividends paid on the short position of Sunglow stock).
• C)All $800 of Elaine's dividends will qualify for reduced tax rates.
• D)All $400 of Tom's dividends will qualify for reduced tax rates.
• E)None of the above.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific product and are a major component of its cost.

Direct Labor

Wages paid to workers directly involved in the production of goods or services, as opposed to administrative or managerial staff.

Manufacturing Overhead

All the indirect costs associated with producing a product, which may include the cost of utilities, depreciation of manufacturing equipment, and salaries of managerial staff.

Conversion Cost

The combined costs of direct labor and manufacturing overheads that are incurred in the process of converting raw materials into finished goods.