What are the tax consequences of the sale of the rights

Reference no: EM132645649

Problem - 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. Thomas owns 100 shares of stock purchased 10 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. Thomas receives 100 rights. On September 30, he exercises 75 of the rights and sells the remaining 25 rights for $6 per right.

Required -

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

b. When does his holding period begin?

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

Reference no: EM132645649

Questions Cloud

How should be conceptualizing work : Our next set of readings start off creaky. Where should the field be heading? What is the field , exactly? How should we be conceptualizing our work?

How do you feel about options for netflix and whole foods : According to the textbook, Netflix employees can choose from a mix of stock options and salary, and Whole Foods employees can vote on the benefits they want.

What is the difference between sympathy and empathy : What is the difference between sympathy and empathy? Why does the use of empathy make someone a more effective communicator?

How to offer and select benefits according to the article : Explain the main topic/question of the article. Discuss factors to consider in determining how to offer and select benefits according to the article.

What are the tax consequences of the sale of the rights : Assuming that Thomas does not allocate his original stock basis to the rights, what is his basis in the new stock? What are the tax consequences of the sale

Describe the organization cloud computing implementation : Describe the organization's Cloud Computing implementation and benefits they realized from the implementation. What was result of implementing Cloud Computing

What are the tax consequences to euclid : What are the tax consequences to Euclid from the following independent events - Euclid bought 500 shares of common stock five years ago for $50,000

Discuss the issues associated with the model : Select one that has either closed or is still open, and discuss the issues associated with the model. What could they do or could they have done to maintain?

Explain which strategies actually used : Explain which strategies you actually used. How did you know if the strategy you chose was effective? How could you tell that a different strategy was needed?

User Account

All Pages