El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3.
Question:
El Toro Corporation declared a common stock distribution 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 380 shares of El Toro stock with a tax basis of $66 per share. The fair market value of the El Toro stock was $106 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?
A. $0 dividend income and a tax basis in the new stock of $66 per share.
B. $20,140 dividend and a tax basis in the new stock of $106 per share.
C. $0 dividend income and a tax basis in the new stock of $106 per share.
D. $0 dividend income and a tax basis in the new stock of $44 per share.
Financial Accounting Tools for Business Decision Making
ISBN: 978-1119368458
7th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine