Question

e-z corporation, which has a dividend reinvestment plan, paid dividends of $20 per share during the year. carlos, who owned 100 shares of e-z corporation prior to the distribution, participated in the plan by using all the dividends to purchase 20 additional shares of stock. he purchased the stock for $100 per share when the fair market value was $125 per share. how much dividend income must carlos report on his income tax return?

Answer 1

Carlos must report $2,000 of dividend income on his income tax return.

Step-by-step explanation:

Carlos must report dividend income on his income tax return for the shares he owns. In this case, Carlos owned 100 shares of e-z corporation and participated in the dividend reinvestment plan by using all of the dividends to purchase 20 additional shares. Each share of stock was purchased for $100 when the fair market value was $125 per share.

Dividend income is calculated based on the amount of dividends received. Carlos received dividends on his 100 shares, which amounted to $20 per share, resulting in $2,000 of dividend income. Since Carlos used all of the dividends to purchase additional shares, he did not receive any cash, but his ownership increased by 20 shares.

Therefore, Carlos must report $2,000 of dividend income on his income tax return.

Answer 2

Carlos must report $2,000 in dividend income, which is calculated by multiplying the 100 shares he owned by the $20 per share dividend paid by E-Z Corporation.

Step-by-step explanation:

The question concerns the amount of dividend income Carlos must report on his income tax return. Carlos owns shares of E-Z Corporation and participates in a dividend reinvestment plan (DRIP). The company paid dividends of $20 per share, and Carlos owned 100 shares prior to reinvestment. Using the dividends, Carlos purchased 20 additional shares at $100 per share, although their fair market value was $125 per share.

To answer the question, we need to calculate the total dividends Carlos received. The total dividends amount to 100 shares * $20/share = $2,000. Since Carlos participated in a DRIP and used these dividends to purchase additional shares, the amount of dividend income he must report is $2,000, as participation in a DRIP does not exempt Carlos from reporting the dividends as income.