Earth Corporation has a single class of common stock outstanding. Tammy owns 1,000 shares, which she purchased in 2011 for $160,000. Earth declares a stock dividend payable in 8% preferred stock having a $230 par value. Each shareholder receives one share of preferred stock for ten shares of common stock. On the distribution date—December 10, 2015—the common stock was worth $437 per share, and the preferred stock was worth $230 per share. On April 1, 2015, Tammy sells half of her preferred stock for $10,500.

Requirements

a.	How much income must Tammy recognize when she receives the stock dividend?
b.	How much gain or loss must Tammy recognize when she sells the preferred stock? (Ignore the implications of Sec. 306.)
c.	What is Tammy's basis in her remaining common and preferred shares after the sale? When does her holding period for the preferred shares begin?

Answer rating: 100% (QA)

1 No income is to be recognized on receipt of stock dividend 2 Gain loss on sale of ha... View the full answer