Penny owned 2,000 shares of Dollar Inc. common stock that were purchased in Year 1 at $10.50 per share. Penny received a 5% non-taxable dividend of Dollar common stock in Year 2. In Year 5, the stock split 2 for 1. In the current year Penny sold 800 shares. What is Penny s basis in the 800 shares sold

$4,000

Explanation:

Penny's originally purchased 2,000 stocks

she then received 5% stock dividends, which means that her total stocks were 2,100

then the stock split 2 for 1, so Penny had 4,200 stocks in total

stocks basis = $10.50 x 2,000 = $21,000

basis per stock = $21,000 / 4,200 stocks = $5 per stock

basis for 800 stocks sold = $5 x 800 = $4,000

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