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A customer purchased 100 shares of Company XYZ common stock five years ago for $20.00 per share. Over the life of her investment, the customer received cash dividends of $2.00 per share, on which she paid total income taxes of $0.50 per share. She recently sold the stock for $30.00 per share. What is the customer's cost basis in each share of XYZ stock?
Suggested Answer: A
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The cost basis of a stock represents the purchase price and does not include dividends received. Taxes paid on dividends also do not affect the cost basis.
Original purchase price per share = $20.00.
Dividends and taxes on dividends do not adjust the stock's cost basis.
A is correct because the cost basis remains $20.00.
B, C, and D incorrectly assume that dividends or taxes change the cost basis.
38 comments · newest first
LA
Lacresha
10 months ago
Totally agree with $20.00, that’s the purchase price!
RE
Reita
11 months ago
Wait, how does selling it for $30 change the cost basis?
PE
Peter
11 months ago
Definitely $22.00 if you factor in the dividends and taxes.
AM
Amos
11 months ago
I think it's $21.50 with the taxes included.
MA
Ma
11 months ago
Cost basis is $20.00 per share.
ED
Edna
11 months ago
I feel like the taxes on dividends might play a role here, but I still think the cost basis is $20.00.
JE
Jerry
12 months ago
I practiced a similar question where dividends were included in the calculation, but I can't recall if they increase the cost basis.
AL
Alpha
12 months ago
I think the cost basis is just the initial purchase price of $20.00 per share, but I could be wrong.
MA
Margot
1 year ago
I remember that the cost basis is usually the purchase price, but I'm not sure if the dividends affect it.
SU
Sunshine
1 year ago
Wait, I'm not sure about this. I need to double-check the formula for calculating cost basis. Let me think this through again carefully.
GR
Gretchen
1 year ago
Easy peasy, the cost basis is just the original purchase price of $20 per share. The dividends and taxes don't affect the cost basis, so the answer is A.
CL
Clement
1 year ago
I think I've got this. The cost basis is the original purchase price ($20 per share) minus the net dividends received ($2 per share - $0.50 per share in taxes) which equals $21.50 per share. Option B looks right to me.
NI
Nichelle
1 year ago
Hmm, I'm a little confused on how to calculate the cost basis here. Do I need to factor in the taxes paid on the dividends or just the net dividends received?
NI
Nilsa
1 year ago
Okay, let's think this through step-by-step. The customer bought the stock for $20 per share, received $2 per share in dividends, and paid $0.50 per share in taxes on the dividends. So the cost basis should be the original purchase price minus the net dividends received.
VO
Vonda
2 years ago
I'm going with D) $30.00. Why? Because I'm feeling rebellious and want to stick it to the system. Plus, the question says she 'recently sold the stock for $30.00 per share,' so that must be the cost basis, right? Right?
WI
Wilbert
1 year ago
I'm going with D) $30.00. Why? Because I'm feeling rebellious and want to stick it to the system. Plus, the question says she 'recently sold the stock for $30.00 per share,' so that must be the cost basis, right? Right?
HE
Herman
1 year ago
D) $30.00
CL
Claudio
1 year ago
C) $22.00
DO
Dortha
1 year ago
B) $21.50
AN
An
1 year ago
A) $20.00
GE
German
2 years ago
I think the cost basis is $22.00, considering the dividends and taxes as well as the selling price.
CO
Colene
2 years ago
I believe the cost basis is $21.50, taking into account the dividends received and taxes paid.
MO
Mona
2 years ago
Seriously, guys? It's not that hard. The answer is B) $21.50. If you can't figure that out, you might want to consider a different career path. Maybe professional cat herder would be a better fit.
CA
Carri
1 year ago
D) $30.00
MI
Mila
2 years ago
C) $22.00
KE
Keneth
2 years ago
B) $21.50
SH
Shawnda
2 years ago
A) $20.00
JO
Johana
2 years ago
Easy peasy! The answer is clearly B) $21.50. You just need to do the simple math - original cost minus taxes plus dividends. This is a piece of cake compared to some of the other questions on this exam.
VI
Vi
2 years ago
I agree with Lindsey, it should be $20.00 because that's what she originally paid per share.
BO
Boris
2 years ago
Hmm, I'm not sure about this one. The dividends and taxes are a bit confusing. I'll go with C) $22.00 just to be safe.
AL
Alba
2 years ago
C: I'm going with $22.00, just to be safe.
GE
Gerald
2 years ago
B: I believe it's $21.50 because of the dividends and taxes.
TO
Tonja
2 years ago
A: I think the cost basis is $20.00.
LI
Lindsey
2 years ago
I think the cost basis is $20.00.
JU
Juan
2 years ago
I think the answer is B) $21.50. The customer paid $20.00 per share, received $2.00 per share in dividends, and paid $0.50 per share in taxes, so the cost basis should be $20.00 - $0.50 + $2.00 = $21.50 per share.
BR
Brent
2 years ago
So, the customer's cost basis per share is $21.50.
AN
Anabel
2 years ago
That makes sense. The cost basis is calculated by subtracting taxes paid and adding dividends received.
BE
Bettina
2 years ago
I think the answer is B) $21.50.