Question

A distribution of nonconvertible preferred stock on common stock is taxable because the distribution ultimately changes...

A distribution of nonconvertible preferred stock on common stock is taxable because the distribution ultimately changes the interest of the common shareholder. T/F

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The statement in question is true.

Under section 305(b)(3), a distribution (or a series of distributions) by a corporation which results in the receipt of preferred stock whether or not convertible into common stock) by some common shareholders and the receipt of common stock by other common shareholders is treated as a distribution of property to which section 301 applies. That portion of the distribution which is a dividend shall be included in gross income and be taxed.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
(a) Salam Investment has outstanding borrowings that include preferred stock. One of these borrowings is (nonconvertible)...
(a) Salam Investment has outstanding borrowings that include preferred stock. One of these borrowings is (nonconvertible) preferred stock (cumulative) with a par value of $250 and an annual dividend rate of 8.25%. This preferred stock is currently selling for $260 per share. Calculate the required rate of return on this nonconvertible preferred stock (b) Jusco Malaysia is selling for $30 a share. In looking at the stream of dividends over the past ten years, you find out that the first...
Preferred stock has characteristics of both debt and common stock. Which characteristics of preferred stock resemble...
Preferred stock has characteristics of both debt and common stock. Which characteristics of preferred stock resemble that of common stock? Group of answer choices Preferred and common dividends are not tax deductible expenses; preferred and common stock both carry voting rights Preferred and common stock both carry voting rights; preferred and common dividends are equally stable and are at management’s discretion Preferred and common stock are classified as a Liability on balance sheet; preferred and common dividends are not tax...
The majority of nonconvertible preferred stock is bought and held by ______ investors. All else being...
The majority of nonconvertible preferred stock is bought and held by ______ investors. All else being equal, is a firm more or less likely to purchase preferred stock as an investment if its tax rate increases? Less likely Doesn’t matter More likely Consider the case of THC Endowment: THC Endowment is an institutional investor and owns preferred stocks worth a 20% stake in Scorecard Corp. Scorecard Corp. paid out dividends of $197,400 to THC Endowment this year. Scorecard Corp. had...
Allison Corp. has just issued nonconvertible preferred stock​ (cumulative) with a par value of​ $20 and...
Allison Corp. has just issued nonconvertible preferred stock​ (cumulative) with a par value of​ $20 and an annual dividend rate of​ 4.25%. The preferred stock is currently selling for​ $18.75 per share. What is the annual yield or return​ (r) on this preferred​ stock?
In your view, why yields in nonconvertible preferred stock are generally lower than yields on corporate...
In your view, why yields in nonconvertible preferred stock are generally lower than yields on corporate bonds? Which investors are the primary holders of preferred stocks? Why?  
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table...
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table below shows financial information on the firm. 2018 Balance Sheet: Interest bearing debt $569,387.00 Preferred stock $47,082.00 Shareholder equity $750,000.00 Duffy has publicly traded common stock that has a capitalization currently of $1,750,809.00. An analyst has estimated that the cost of debt for Duffy is 7.00%, the cost of the preferred stock is 9.00%, and the cost of the common equity is 14.00%. Duffy...
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table...
Duffy Enterprises has issued common stock, preferred stock, and debt to finance its operation. The table below shows financial information on the firm. 2018 Balance Sheet: Interest bearing debt $555,635.00 Preferred stock $47,428.00 Shareholder equity $750,000.00 Duffy has publicly traded common stock that has a capitalization currently of $1,710,860.00. An analyst has estimated that the cost of debt for Duffy is 6.00%, the cost of the preferred stock is 10.00%, and the cost of the common equity is 14.00%. Duffy...
A parent acquires 70% of a subsidiary’s common stock and 60 percent of its preferred stock....
A parent acquires 70% of a subsidiary’s common stock and 60 percent of its preferred stock. The preferred stock is noncumulative. The current year’s dividend was paid. How is the noncontrolling interest in the subsidiary’s net income assigned? Multiple Choice The noncontrolling interest in consolidated net income is assigned as 40 percent of the value of the preferred stock, based on an allocation between common stock and preferred stock and their relative par values. There is no allocation to the...
Exercise 19-16 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold [LO19-5, 19-6, 19-7]...
Exercise 19-16 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold [LO19-5, 19-6, 19-7] On December 31, 2020, Berclair Inc. had 480 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 54 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Nine million treasury shares were sold on October 1....
Preferred stock is often called a hybrid security because it has some characteristics that are typical...
Preferred stock is often called a hybrid security because it has some characteristics that are typical of debt and others that are typical of common equity. The following table lists several characteristics of preferred stock. Determine which of these characteristics are consistent with debt securities and which are consistent with common stock. Characteristic Debt Common stock Its dividends are fixed in amount. It has a par, or face, value. Consider the case of Blue Hamster Manufacturing: Blue Hamster Manufacturing pays...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT