Reference no: EM132460217

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 $45. One right is issued for every share of stock owned. Thomas owns 100 shares of stock purchased 10 years ago for $2,300. At the time of the distribution of the rights, the market value of the common stock is $68 per share and the market value of the rights is $9 per right. Thomas receives 100 rights. On September 30, he exercises 75 of the rights and sells the remaining 25 rights for $11 per right.

Problem a. Assuming that Thomas does not allocate his original stock basis to the rights, what is his basis in the new stock?

$__________

Problem b. When does his holding period begin?

The holding period of the new stock begins on the date __________.

Problem c. What are the tax consequences of the sale of the rights?

The sale of the rights produces __________ of $__________.