Question

At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she earned $820 dividend income which purchased 39 additional shares. Which of the following statements is true? Multiple Choice

A. Ms. Faro recognizes no dividend income and has a $15,000 basis in her 789 shares.

B. Ms. Faro recognizes no dividend income and has a $15,820 basis in her 789 shares.

C. Ms. Faro recognizes $820 dividend income and has a $15,820 basis in her 789 shares.

D. None of the above statements is true.

Answer 1

Explanation for incorrect options:

Option A: all the dividend mentioned in form 1099-DIV is to be recognized in the income tax return, thus option A is incorrect.

Option B: all the dividend mentioned in form 1099-DIV is to be recognized in the income tax return, thus option B is incorrect.

Opton D: Since Option C is correct it cannot be true

Explanation for correct options:

Option C: all the dividend mentioned in form 1099-DIV is to be recognized in the income tax return thus $ 820 as dividend income would be recognized and basis would increase to $ 15820 because they were reinvested and shares would add up to 789 shares.