Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later,he receives a 5% common stock dividend.At that time,the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple Corporation stock,the per share basis,and gain recognized upon receipt of the common stock dividend?

Question

Quizplus · Accepted Answer

The $50,000 cost of the original shares must be allocated to the total shares owned after the stock dividend (5,000 + 250 = 5,250).Therefore,the basis per share is $9.52 ($50,000/5,250).No gain is recognized on the receipt of the stock dividend.

Kevin Purchased 5,000 Shares of Purple Corporation Stock at $10