Unit 21

All of the following are considered unique or nonstandard corporate actions except

B) 3:1 stock split.

An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct? The adjusted cost basis of the shares is $30. The adjusted cost basis of the shares is $32. There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares. There is a long-term capital gain on all of the shares sold.

C) II and IV When a company declares a stock dividend, the cost basis per share is always reduced. The computation is the original total cost ($4,000) divided by the new number of shares. 100 × .25 = 25 additional shares for a total of 125. $4000 / 125 shares equals a new cost basis per share of $32. When any of the shares are sold, including those received in the stock dividend, the holding period for capital gain or loss, is always the original purchase date. In this case, that was more than 12 months ago so any gains are long term.

On August 20 of last year, when the stock was trading at $42 dollars, Seabird Airlines declared a 15% stock dividend, payable on September 15. On the close of trading, on the pay date, the stock was trading at $40. What would a customer who owned the stock all of last year report for tax purposes?

C) Nothing There are no tax implications for a stock dividend.

BakeCo, an NYSE-listed food company, has decided to split off its cookie-making operation into a separate corporation. Current shareholders will receive one share of tterm-4he new company, BigCookieCo, for each share of BakeCo they own as of the record date. This action is an example of

D) a spin-off.

Mr. Tate owned 100 shares at $50 per share the company declared a 2 for 1 split, which of the following is true?

He now has more shares at a lower cost basis.

Possible benefits of owning common stock do not include which of the following?

Interest income (only for bonds)

Angela Quinn owns 100 shares of LMN with a cost basis of $60. LMN has a 2:1 split and she sells 100 shares the next year for $40 per share. Quinn has which of the following tax consequences?

She has a $10 gain per share on the 100 shares sold.

Mr. McCann owned 100 LMN at $10 per share when the board of directors (BOD) declared a 1:4 split. What will happen to the share price and the number of shares?

The share price will go to $40 and will own 25 shares. For reverse splits the price goes up and the number of shares goes down.

Issuers are not required by the Securities Exchange Commission (SEC) to give notice of corporate actions to shareholders for actions such as

interest on the issuer's bonds.

Each of the following activities would be deemed by market regulators to be manipulative behavior except

proxy solicitation.

All of the following would be included in a notice of corporate action regarding a stock dividend except

the stock's issue date.