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Stuart owns 2,000 shares of Blue Corporation stock. During the year, Stuart received 100 shares of...

Stuart owns 2,000 shares of Blue Corporation stock. During the year, Stuart received 100 shares of Blue Corporation stock as a result of a 5% stock dividend. Stuart did not have the option of receiving cash from Blue. The additional shares he received had a value of $7,200. Stuart’s gross income from the receipt of the additional Blue shares is:

a. $0 b. $7,200 c. $12,000 d. $4,800

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Answer #1

Answer :

given the following information

Stuart owns 2000 shares.received 100 shares as stock dividedn(5% stock dividedn).

The 100 additional shares received has a value of $7,200.

in the given stcok dividend,stuart did not have the option of receiving cash from blue corporation.

for computation of gross income ,Cash dividend is included as income from stock.

But  in the present case divided is stock divided with did not have option to receive cash in lieu of stock.

Stock dividend is not included in calculation of gross income only when there is an option to receive cash in lieu of stock(Then value of addiotional shares is included in gross income)

As per given case there is no option to receive in cash.So no part of dividend is included in gross income even though additional shares has value of $7,200.

So answer is a.$0

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