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

Exercise 31

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?