Kathleen owns 500 shares of Buda Corporation common stock which was purchased on March 20, 2008, for $48,000. On October 10 of the current year, she receives a distribution of 500 stock rights. Each stock right has a $20 FMV and the FMV of the Buda common stock is $100 per share. With each stock right, she may acquire one share of Buda common stock for $95.
a. How much gross income must Kathleen recognize?
b. What is the basis of each stock right received?
c. If she sells the 500 stock rights for $10,600, what is her gain?
d. If she exercises the 500 stock rights on November 10, what is the basis of the 500 shares she receives and when does the holding period for those shares start?