In 2010, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2010 and 2011, she received Form 1099s reporting the following. If Mrs. Owens sells her 3,390 shares in 2012 for $22 per share, compute her recognized gain.

Question

In 2010, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest dividends in additional shares. In 2010 and 2011, she received Form 1099s reporting the following.  If Mrs. Owens sells her 3,390 shares in 2012 for $22 per share, compute her recognized gain.

Quizplus · Accepted Answer

To determine Mrs. Owens's recognized gain, we need to calculate her cost basis in her 3,390 shares. Her original investment of $50,000 is her initial cost basis. Then we need to add the reinvested dividends, which total $1,500 ($750 in 2010 and $750 in 2011). This brings her cost basis to $51,500. 
Next, we need to subtract her proceeds from selling the 3,390 shares in 2012, which is $74,580 ($22 per share x 3,390 shares). 
Her recognized gain is therefore $23,080 ($74,580 - $51,500). 
Therefore, the best answer choice is C.