Melific Ltd

Essay

Melific Ltd. has 4,500,000 common shares outstanding. Jerry Fry acquired 5 percent of these shares at a cost of $19 per share. During the current year, the Company declares a 6 percent stock dividend which it designates as eligible. At this time the shares are trading at $21 per share. The Company transfers the amount of the stock dividend to paid up capital. What are the tax consequences to Jerry Fry of this transaction? Your answer should include the adjusted cost base per share of Jerry's holding.