Question

Donna owns 800 shares of common stock in Macaw Corporation (adjusted basis of $40,000). She receives a 5% stock dividend when the stock is selling for $60 per share. How much gross income must Donna recognize because of the stock dividend? What is Donna’s basis for her 840 shares of stock?

Answer 1

The gross income Donna needs to recognize from stock dividend is ZERO.

Donna’s basis for her 840 shares of stock is $47.62.

Step-by-step explanation:

Assuming that Donna does not have any option to recieve dividend in form of cash, the stock devidend will be non-taxable.

Therefore, The gross income Donna needs to recognize from stock dividend is ZERO.

Adjusted basis per share after dividend

= Adjusted basis of 800 shares/number of shares

= $40,000/840

= $47.62

Therefore, Donna’s basis for her 840 shares of stock is $47.62.