Jose Receives a Nontaxable Distribution of Stock Rights During the Year

question 71

Multiple Choice

Jose receives a nontaxable distribution of stock rights during the year from Gold Corporation on January 30.Each right entitles the holder to purchase one share of stock for $50.One right is issued for every share of stock owned.Jose owns 100 shares of stock purchased two years ago for $5,000.At the date of distribution,the rights are worth $1,000 (100 rights at $10 per right) and Jose's stock in Gold is worth $6,000 (or $60 per share) .On December 1,Jose sells all stock rights for $13 per right.How much gain does Jose recognize on the sale?

• A)$1,300.
• B)$5819-
• C)$500.
• D)$0.
• E)None of the above.

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Definitions:

Less Carefully

Pertaining to actions or tasks performed with a lower degree of diligence or attentiveness.

Moral Hazard

The risk that one party to a contract can change their behavior to the detriment of another party, knowing that they won't have to bear the full consequences of their actions.

Piece-rate Garment Worker

A worker in the garment industry who is paid for each piece produced, rather than receiving an hourly wage.

Hourly Salesman

A salesperson who is compensated based on the number of hours worked, rather than commission on sales made.