Which of the Following Stock Dividends Would Be Tax-Free to the Shareholder

question 46

Multiple Choice

Which of the following stock dividends would be tax-free to the shareholder?

• A) A 2-for-1 stock split to all holders of common stock.
• B) A stock dividend where the shareholder could choose between cash and stock.
• C) A stock dividend to all holders of preferred stock.
• D) A 2-for-1 stock split to all holders of common stock and a stock dividend to all holders of preferred stock are tax-free to the shareholder.

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Definitions:

Net Credit Sales

The total value of sales made on credit minus returns and allowances, representing actual sales revenue earned and expected to be collected.

Honoring a Note

The act of paying off a note payable or bond at its maturity, fulfilling the issuer's obligation.

Note Receivable

A note receivable is a financial asset representing a written promise to receive a specific amount of money, with interest, from another party by a certain date.

Percent of Sales Method

A financial analysis tool used to forecast future expenses or accounts such as bad debts, based on a percentage of sales.