Terri Owns 1,000 Shares of Borneo Corporation Common Stock

Multiple Choice

Terri owns 1,000 shares of Borneo Corporation common stock. On March 31 of the current year, when the stock is trading at $2 per share, Borneo declares a 5% stock dividend with the option to receive $2 cash per dividend share in lieu of taking the dividend shares. The dividend is distributed on April 30. Terri elects to receive the stock shares rather than the cash dividend. What are the tax effects for Terri?
I.Terri's stock dividend is nontaxable.
II.Terri's basis in her new shares is $100.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.