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16 July, 05:58

Luana pays $40 per share for 100 shares of Manano Corporation common stock. At the end of the year, the market price of the stock is $60 per share. During the year, she receives a cash dividend of $4 per share. Manano reports that $3 per share is taxable and $1 per share is a nontaxable dividend. What are the tax effects of these events?

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  1. 16 July, 07:01
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    there is capital recovery of share by $1

    Explanation:

    given data

    share = 100

    pays = $40 per share

    market price = $60 per share

    dividend = $4 per share

    taxable = $3 per share

    nontaxable dividend = $1 per share

    to find out

    tax effects of these events

    solution

    we know that Reported as gross income and does not effect basis of stock i. e $3

    and basis of the stock is reduces by non taxable dividend that is also excluded from the gross income that is

    gross income = $1 * 100 share

    gross income = $100

    so that

    finally the adjusted basis in stock is $40 - $1

    adjusted basis in stock is $39

    so that It is reduced because

    there is capital recovery of share by $1
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