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26 March, 18:12

Donna owns 800 shares of common stock in Macaw Corporation (adjusted basis of $40,000). She receives a 5% stock dividend when the stock is selling for $60 per share. How much gross income must Donna recognize because of the stock dividend? What is Donna's basis for her 840 shares of stock?

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  1. 26 March, 18:22
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    The gross income Donna needs to recognize from stock dividend is ZERO.

    Donna's basis for her 840 shares of stock is $47.62.

    Explanation:

    Assuming that Donna does not have any option to recieve dividend in form of cash, the stock devidend will be non-taxable.

    Therefore, The gross income Donna needs to recognize from stock dividend is ZERO.

    Adjusted basis per share after dividend

    = Adjusted basis of 800 shares/number of shares

    = $40,000/840

    = $47.62

    Therefore, Donna's basis for her 840 shares of stock is $47.62.
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