Freda Freemont receives a nontaxable stock dividend of 30 shares of preferred stock on her Georgia Corporation common stock. Freda purchased the 200 shares of common stock two years ago for $12,000. On the date of distribution, the fair market value of the common stock was $75 per share and the fair market value of the preferred was $100 per share. What is the new basis, per share, of the common stock?
A) $75.00
B) $50.00
C) $100.00
D) $66.67

Question

Quizplus · Accepted Answer

the basis of $12,000 is allocated between the common stock and the preferred stock according to the relative fair market value
$15,000/$18,000 × $12,000 = $10,000 divided by 200 = $50 per share

Freda Freemont Receives a Nontaxable Stock Dividend of 30 Shares