Townsend Corporation Declared a One-For-One Stock Distribution to All Common

Essay

Townsend Corporation declared a one-for-one stock distribution to all common stock shareholders of record on December 31, year 1.Townsend reported current E&P of $400,000 and accumulated E&P of $1,000,000.The total fair market value of the stock distributed was $500,000.Regina Williams owned 1,000 shares of Townsend common stock, with a tax basis of $200 per share ($200,000 total).The fair market value of the common stock was $300 per share on December 31, year 1.What is Regina's income tax basis in the new and existing common stock she owns in Townsend, assuming the distribution is nontaxable?