Homework Answers
Answer :-
First we calculate the New common stock of Pierre dorgan in Sweetwater Corporation.
Pierre dorgan existing common stock =500 shares
If Sweetwater Corporation declared that stockholders receive one share for each five shares of common stock.
New shares of Pierre dorgan = 500*1/5=100 shares
Pierre dorgan total share = 500 share + 100 share
Pierre dorgan total share = 600 share
Now we calculate the Income tax basis per share.
When Pierre Dorgan owns 500 shares, then Income tax basis is $150 per share.
If Pierre Dorgan owns 600 share the income tax basis is (500 × $150 per share) - $125 per share.
It was mentioned in the last line that the distribution is non-taxable that a reason tax basis is multiple by existing share of sweetwater. But the total income tax basis is divided by Pierre Dorgan of total shares.
Answer :- Pierre income tax basis is $125 per share in hid new and existing common stock
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