Five years ago, a customer purchased 1,000 shares of ABC stock at $60 per share. The stock has appreciated in value and is currently worth $100,000. The company announces that it is spinning off a subsidiary, DEF, to its shareholders. The value of the new company being spun off equals 10% of the old company. The customer will have:

$54,000 cost basis in ABC; $6,000 cost basis in DEF

Explanation:

The original cost basis is the price that was paid for the shares. This means that 1,000 shares at $60 each gives a cost basis of $60,000.

Now if the subsidiary DEF is worth 10% of ABC which has a cost basis of $60,000, then the share of DEF that customers will have will be 10% of $60,000.

(10÷100) x $60,000 = 0.1 x $60,000

                                = $6,000.

Now, if DEF is worth $6,000 (i.e 10%) of ABC, then ABC's worth will now be $60,000 - $6,000 = $54,000.

The original cost basis is that price that was paid for the shared initially. This means that it has no effect on the increase in value of the shares.

Cheers.

it is a i took the test.