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 1 share of Sweetwater common stock for each 5 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 non-taxable?