Vadel Inc., a Canadian public company, has 1,000,000 shares outstanding with a total PUC of $1,750,000. Mr. Vincent Dorval owns 5,000 of these shares with an adjusted cost base of $11,250. Vadel Inc. declares a 5 percent non-eligible stock dividend at a time when its shares are trading at $2.50 per share. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

The dividend is non-eligible, so it is not taxable. The adjusted cost base of Mr. Dorval's shares will increase by the amount of the dividend, which is $125 (5,000 shares x $0.05 per share x 5% dividend). The PUC of Vadel's shares will increase by the amount of the dividend, which is $50,000 (1,000,000 shares x $0.05 per share x 5% dividend).

Vadel Inc, a Canadian Public Company, Has 1,000,000 Shares Outstanding with with a Total