Badger Corporation declared a stock dividend to all shareholders of record on March 25of this year. Shareholders will receive one share of Badger stock for each ten shares of stock they already own. Madison Cheeseman owns 1,000 shares of Badger stock with a tax basis of $100 per share. The fair market value of the Badger stock was $110 per share on March 25 of this year.
a. What amount of taxable dividend income, if any, does Madison recognize this year?
b. What is Madison's income tax basis in her new and existing stock inBadger Corporation, assuming the distribution is non-taxable?
c. How would you answer questions a and b if Madison was offered the choice between 1share of stock in Badger for each 10 shares she owned or $100 cash for each 10 shares she owned in Badger?