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Unappropriated retained earnings are reconciled on Schedule M-2 of the Form 1120. CPA-05521 Type1 M/C A-D Corr Ans: A PM#109 R 3-01 76. CPA-05521 Released 2007 Page 41
Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market
value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each
share of Media common stock owned by Taylor after receipt of the dividend?
Choice "a" is correct. A stock dividend is a distribution by a corporation of its own stock to its
shareholders. Stock dividends are generally not taxable unless the shareholder has a choice of receiving
cash or other property, and the facts indicate that this is a nontaxable 10% dividend. The basis of a
nontaxable stock dividend, where old and new shares are identical, is determined by dividing the basis of
the old stock by the number of new shares. The calculation is as follows:
Original basis of 1,000 shares
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land