Stock Dividend Distribution. Moss Corporation has a single class of common stock outstanding. Tillie owns 1,000 shares, which she purchased in 2011 for $100,000. Moss declares a stock dividend payable in 8% preferred stock having a $100 par value. Each shareholder receives one share of preferred stock for ten shares of common stock. On the distribution date--December 10, 2015-- the common stock was worth $180 per share and the preferred was worth $100 per share. On April 1, 2015 Tillie sells half of her preferred stock for $5,000.

a. How much income must Tillie recognize when she receives the stock dividend?

b. How much gain or loss must Tillie recognize when she sells the preferred stock? (Ignore the implications of Sec. 306.)

c. What is Tillie's basis in her remaining common and preferred shares after the sale? When does her holding period for the shares begin?