McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 3

Hoosier Corporation declared a 2-for-1 stock split to all shareholders of record on March 25, 2011. Hoosier reported current E P of $600,000 and accumulated E P of $3,000,000. The total fair market value of the stock distributed was $1,500,000. Barbara Bloomington owned 1,000 shares of Hoosier
stock with a tax basis of $100 per share.
a. What amount of taxable dividend income, if any, does Barbara recognize in 2011 Assume the fair market value of the stock was $150 per share on March 25, 2011.b. What is Barbara's income tax basis in the new and existing stock she owns in Hoosier Corporation, assuming the distribution is tax-free
c. How does the stock dividend affect Hoosier's accumulated E P at the beginning of 2012