Etta received nontaxable stock rights on October 3, 2012.She allocated $12,000 of the $30,000 basis for the associated stock to the stock rights.The stock rights are exercised on November 8, 2012.The exercise price for the stock is $42,000.What is Etta's basis for the acquired stock?
A)$12,000.
B)$42,000.
C)$54,000.
D)$72,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Etta's basis for the associated stock is $18,000 ($30,000 - $12,000 allocated to the stock rights). When the stock rights are exercised, the $12,000 basis allocated to the rights is added to the cost of the acquired stock, making the total basis $54,000 ($42,000 exercise price + $12,000 allocated basis).

Etta Received Nontaxable Stock Rights on October 3, 2012