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
0
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