Frank has 200 shares of XYZ, Inc. with a basis of $5,000 and a value of 7,500. He receives a tax-free stock dividend of 50 additional shares, worth $2,500.

(a) After the stock dividend, what is his per-share basis in the stock? In other words, if he sells 1 share of stock, what is the basis in that share for determining the gain on the sale of the share?

(b) Suppose it was a tax-free dividend, but the 50 new shares were of preferred stock – what would his basis be in common stock and in the preferred stock?

Answer rating: 100% (QA)

As per given details please refer below answer Q a Stock dividend is tax free hence i... View the full answer