Question

On November 1, 2018, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2018, the corporation had declared the dividend payable to shareholders of record as of November 22, 2018. The dividend was paid on December 15, 2018. The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock. When Dave collected the dividend on December 15, 2018:a. Bob must include $1,000 (10/12 x $1,200) of the dividend in his gross income.

b. Bob must include all of the dividend in his gross income.
c. Dave must include all of the dividend in his gross income.
d. Dave should treat the $1,200 as a recovery of capital.
e. None of these is correct.

Answer 1

The correct answer is b. Bob must include all of the dividend in his gross income.

Step-by-step explanation:

The dividend is the part of the benefit that is distributed among the shareholders of a company. It constitutes the remuneration the shareholder receives for owning the company. The amount is variable according to the annual results that the company has obtained; it is proposed by the board of directors for approval at the general meeting; and it can be of many types (gross, net, on account, extraordinary, complementary, etc.).

For its part, the dividend yield is one of the ratios that analysts use to value the shares of a company. When acquiring a stock exchange, it is not only necessary to consider what the revaluation of that asset may be. Dividend distribution is also part of the return that an investor will receive.