Townsend Corporation Declared a 1-For-1 Stock Split to All Common

question 71

Short Answer

Townsend Corporation declared a 1-for-1 stock split to all common stock shareholders of record on December 31, year 1. Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000. The total fair market value of the stock distributed was $500,000. Regina Williams owned 1,000 shares of Townsend common stock with a tax basis of $200 per share ($2,000,000 total). The fair market value of the common stock was $300 per share on December 31, year 1. What is Regina's income tax basis in the new and existing common stock she owns in Townsend, assuming the distribution is nontaxable?

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Definitions:

Diatomaceous Earth

A naturally occurring, soft, siliceous sedimentary rock that is easily crumbled into a fine white to off-white powder, used in various industrial and commercial applications.

Pellicle

Structure that supports the cell membrane of some species of protists; used to maintain structure in a water environment.

Dinoflagellates

A group of protists characterized by two flagella, forming part of both marine and freshwater plankton and often producing harmful algal blooms.

Euglenoids

A diverse group of single-celled organisms belonging to the kingdom Protista, characterized by their flexible cell membranes and the presence of a flagellum.