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Which statements is correct about stock dividend received

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Problem 1: A Canadian resident individual received a stock dividend from a public corporation of one share. The dividend is a taxable dividend. The stock dividend resulted in an increase in the paid-up capital of $5 for each share issued but the fair market value of each share is $10. Which of the following statements is correct about the stock dividend received?

Option 1: The cost of the stock is deemed to be $4 and the individual's net income increases by $5.52.

Option 2: The cost of the stock is deemed to be $5 and the individual's net income increases by $6.90

Option 3: The cost of the stock is deemed to be $5 and the individual's net income increases by $5.52.

Option 4: The cost of the stock is deemed to be $0 and the individual's net income increases by $6.90

Reference no: EM132704745

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