Hendricks Corporation has very large E&P. On May 15 it declared a 15% stock dividend payable to all shareholders. On September 15 when each share was worth

$500, it distributed the shares. Jimmy owns 200 shares of Hendricks Corporation.

He acquired the shares five years ago for $23,000. Jimmy sold 100 shares of Hendricks Corporation on December 15 at

$600 per share after all transaction costs.

a. What are the tax consequences of the distribution to Jimmy?

b. How much, if any, gain or loss does Jimmy recognize on the sale of the 100 shares and what is its character?