Two days before the ex- dividend date, Drexel Corporation buys 100 shares of Zebra Corporation stock (less than 1%) for $200,000. Drexel Corporation receives $10,000 of dividends from Zebra Corporation. Two weeks after the ex- dividend date, Drexel Corporation sells the Zebra Corporation stock for $190,000. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Drexel Corporation purchased the Zebra Corporation stock less than two days before the ex-dividend date, which means they are not entitled to the dividend. Therefore, they cannot take a dividends-received deduction on the $10,000 dividend they received from Zebra Corporation. Additionally, since Drexel Corporation sold the stock at a loss, they may recognize a capital loss on the sale. However, the amount of the loss will depend on the cost basis of the stock and any adjustments for the dividend received.

Two Days Before the Ex- Dividend Date, Drexel Corporation Buys