David Drew owned two shares of ABC Corporation common stock. He paid $60 for one

Question

David Drew owned two shares of ABC Corporation common stock. He paid $60 for one share on January 15, 2008 and $30 for one share on March 31, 2006. The corporation declared a stock dividend which gave stockholders two 2 new shares of common stock for each share owned. After the distributions of the shares to the shareholder, how many shares are owned by David and what is the adjusted basis of each share? (Points : 4) A) 6 shares owned; 3 shares with $20/cost basis and 3 shares with $40/cost basis B) 6 shares owned: 4 shares with $0/cost basis and 1 share with $30/cost basis and 1 share with $60/cost basis. C) 6 shares owned: 3 shares with $30/cost basis each and 3 shares with $10/cost basis each. D) 6 shares owned: 2 shares with $45/cost basis each and 4 shares with $0/cost basis each.

Explanation / Answer

B) 6 shares owned: 4 shares with $0/cost basis and 1 share with $30/cost basis and 1 share with $60/cost basis.

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