El Toro Corporation declared a common stock dividend to all shareholders of record on June 30,20X3.Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own.Raoul owns 300 shares of El Toro stock with a tax basis of $60 per share.The fair market value of the El Toro stock was $100 per share on June 30,20X3.What are the tax consequences of the stock dividend to Raoul?

Question

Quizplus · Accepted Answer

Stock dividends are generally not taxable. Raoul's total basis of $18,000 ($60 x 300) is spread over 450 shares (300 original + 150 new), resulting in a basis of $40 per share.

El Toro Corporation Declared a Common Stock Dividend to All