Question

In: Accounting

Megan owns 200 of the 1,000 shares of Seabeach Corp. Her basis is $10,000. The corporation...

  1. Megan owns 200 of the 1,000 shares of Seabeach Corp. Her basis is $10,000. The corporation declares a 10% stock dividend to the common stock holders.
  1. How many shares does Megan receive?
  2. What is Megan’s basis in the new shares received?
  3. What is Megan’s holding period in the new shares received?
  4. Would the answer change, and if so how, if Megan was given a choice to take the additional shares or their cash equivalent?

NB/ PLEASE ANSWER BY DOING CALCULATIONS

Solutions

Expert Solution

a) Meghan holds 200 shares of Seabeach corp. A 10% stock dividend would mean Meghan would receive 20-shares (Calculation: 200x10% = 20).

b) Megan’s basis in the new shares received is $1000.

Calcuation: 10% of $10,000 is $1000.

c) Meghan holds the shares till she disposes off (In the absence of information)

d) No, if Meghan chooses to take additional shares then she would have 20 additional shares of Seabeach Corp. If Meghan chooses to take the cash equivalent option for 10% dividend she would receive $1000

Cash divided calculations:
Shares before dividend: 200
Shares after dividend: 220 (10% dividend on 200 shares)
value of 20 shares is 10% of $10,000. Hence the cash equivalent is 20 additional shares is $1000.

ekkarill92 answered 2 years ago
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