El Toro Corporation declared a common stock dividend to all shareholders of reco

Question

El Toro Corporation declared a common stock dividend 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 330 shares of E Toro stock with a tax basis of S72 per share. The fair market value of the El Toro stock was $112 per share on June 30, 20X3. What are the tax consequences of the stock dividend to Raoul? Multiple Choice $18,480 dividend and a tax basis in the new stock of $112 per share S0 dividend income and a tax basis in the new stock of $112 per share. sO dividend income and a tax basis in the new stock of $48 per share. $O dlvidend income and a tax basis in the new stock of $72 per share

Explanation / Answer

ANSWER : $ 0 dividend income and a tax basis in the new stock of $ 48 per share

NOTE: the stock dividend is nontaxable because it is pro rata. the tax basis of the new stock is pro rated

from the tax basis of the stock on which it was paid. the tax basis of the 330 shares is $ 23760

( $ 72 per share). the total basis is now allocated across 495 shares so the per share basis is

$48 ($23760/ 495 =$ 48 per share )   

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