Question

For the scenario described (a. $50,000 basis in stock, $9.52 basis per share, $0 recognized gain), which of the following statements is true?

A) The basis per share is $9.52, and no gain is recognized on the receipt of the stock dividend.
B) The basis per share is $50,000, and no gain is recognized on the receipt of the stock dividend.
C) The basis per share is $0.
D) The basis per share is determined by the fair market value of the stock after the dividend.

Answer 1

The correct response is that the basis per share remains at $9.52 after receiving the stock dividend as no gain is recognized, and the basis of the stock remains the same, only distributed over more shares.

Step-by-step explanation:

The correct answer to the question is: A) The basis per share is $9.52, and no gain is recognized on the receipt of the stock dividend.

In the scenario where a person has a $50,000 basis in stock and the basis per share is $9.52, if no gain is recognized, it means the value of their investment is divided over the shares they hold without taking into account any capital gain that might have occurred.

In other words, if they receive additional shares as a stock dividend, their overall investment basis remains the same, but is now spread over more shares, keeping the per-share basis consistent at $9.52, assuming no other events that would alter the basis.

The correct statement for the given scenario is: A) The basis per share is $9.52, and no gain is recognized on the receipt of the stock dividend.