A corporation with common stock outstanding declares a nontaxable dividend payable in rights to subscribe to common stock

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A corporation with common stock outstanding declares a nontaxable dividend payable in rights to subscribe to common stock on June 30 of the current year. Each right entitles the holder to purchase one share of stock for $25. One right is issued for every share of stock owned. Nexsen owns 100 shares of stock purchased ten years ago for $1,000. At the time of the distribution of the rights, the market value of the common stock is $40 per share, and the market value of the rights is $5 per right. Nexsen receives 100 rights. On September 30, he exercises 75 of the rights and sells the remaining 25 rights for $6 per right.

If required, round your answers to two decimal places.

If Nexsen does not allocate his original stock basis to the rights, his basis of the new stock is $ ?. The holding period of the new stock begins on the date. The sale of the rights produces a capital gain of $?

tax Drill – Allocating E & P

On January 1 of the current year, Rhondell Corporation has accumulated E & P of $23,000. Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year: A total of $50,000 ($25,000 to Elizabeth and $25,000 to Jonathan) on April 30 and a total of $60,000 ($30,000 to Jonathan and $30,000 Marshall) on December 31.

Determine the allocation of the distributions by completing the table below. Assume the shareholders have sufficient basis in their stock for any amount that is treated as return of capital.

Round any division to 6 decimal places. If required, round your computations to the nearest dollar and use rounded amounts in subsequent computations. If an amount is zero, enter “0”.

From Current
E & P

From Accumulated
E & P

Treated as
Return of Capital

April 30 distribution of $50,000

$

$

$

December 31 distribution of $60,000

$

$

$

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