Sweetwater Corporation Declared a Stock Dividend to All Common Stock

Essay

Sweetwater Corporation declared a stock dividend to all common stock shareholders of record on December 31, year 1.Shareholders will receive one share of Sweetwater common stock for each five shares of common stock they already own.Pierre Dorgan owns 500 shares of Sweetwater common stock, with a tax basis of $150 per share.The fair market value of the Sweetwater common stock was $90 per share on December 31.What is Pierre's income tax basis in his new and existing common stock in Sweetwater, assuming the distribution is nontaxable?