Bridget owns 200 shares of common stock of Jones Corporation.During the current year,Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned.The stock has a fair market value of $10 per share.Bridget chooses to take the additional shares of stock.How much income does Bridget have from the stock dividend?

Question

Quizplus · Accepted Answer

If Bridget were to take the cash dividend option, she would receive $2 per share, which would be a total of $400 (200 shares x $2/share). However, she chose to take the option of receiving one additional share of Jones common stock for every 5 shares of stock owned. Since Bridget has 200 shares, she is entitled to receive 40 additional shares of Jones common stock (200 shares / 5 shares per additional share = 40 additional shares).

The fair market value of Jones common stock is given as $10 per share, so the 40 additional shares of stock are worth a total of $400 (40 shares x $10/share). Bridget does not have any income from this stock dividend because she did not receive any cash. However, the additional 40 shares of Jones common stock she received will increase her holdings in the company.

Bridget Owns 200 Shares of Common Stock of Jones Corporation