Bell Corp declares a nontaxable dividend payable in rights to subscribe to common stock. Each right entitles the holder to purchase a share of common stock for $50. Each shareholder receives one right for every four shares of common stock owned. Bob owns 800 shares and his basis is $30/share, purchased on January 1, 2005. The FMV of the stock is $65/share The FMV of each right is $12/share Bob exercises half of his rights and sells the remainder for $14/share

*Must the cost of the stock be allocated to the rights? Yes or no

*If the cost of the stock is allocated to the rights, either because it must, or because Bob elects to, what is the basis of the stock and what is the basis of the rights?

Basis of the stock:

Basis of the rights: