An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share. She receives a nontaxable 5% stock dividend. The basis per share of the common stock after the stock dividend is
A)$9.00.
B)$9.50.
C)$9.52.
D)$10.00.

Question

Quizplus · Accepted Answer

When a nontaxable stock dividend is received, the total basis of the original shares is allocated over the total number of shares owned after the dividend. The original basis is $30,000 (3,000 shares x $10). After a 5% stock dividend, she owns 3,150 shares (3,000 + 150). The new basis per share is $30,000 / 3,150 = $9.52.

An Individual Shareholder Owns 3,000 Shares of Baxter Corporation Common