El Toro Corporation declared a common stock distribution to all shareholders of record on June 30, 20X3. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 340 shares of El Toro stock with a tax basis of $78 per share. The fair market value of the El Toro stock was $118 per share on June 30, 20X3. What are the tax consequences of the stock distribution to Raoul?

Multiple Choice

• $0 dividend income and a tax basis in the new stock of $118 per share.

• $0 dividend income and a tax basis in the new stock of $78 per share.

• $0 dividend income and a tax basis in the new stock of $52 per share.

• $20,060 dividend and a tax basis in the new stock of $118 per share.