Answered Essay: On December 1, 2017, Bigham Corporation pays a dividend of $4.00 on each share of its common stock. Vane

On December 1, 2017, Bigham Corporation pays a dividend of $4.00 on each share of its common stock. Vanessa and Gena, two unrelated shareholders, each own 5,000 shares of the stock. Vanessa has owned her stock for two years while Gena purchased her stock on November 3, 2017. How does each shareholder treat the $20,000 dividend from Bigham?

The $20,000 that Vanessa receives is ____________  and the $20,000 that Gena receives is ____________.

Expert Answer


As Bigham Corporation declares(as dividend declaration date not given-assumed) and pays dividend only in the fiscal year 2017,both Gena & Vanessa will treat the $ 20000 as normal investment income only, pertaining the accounting year 2017 .
Holding period of shares of stock are also relevant for the Corporation ,for purposes of calculating weighted average no.of shares outstanding —to calcualte basic EPS
The $20,000 that Vanessa receives is a qualified dividend which is taxed at capital gains tax rate(lower tax rate as the shares are being held for more than a year,ie. Minimum holding period specified)
and the $20,000 that Gena receives is an unqualified dividend that will be taxed at ordinary income-tax rate as it is held for less than the minimum specified holding period,ie. one year.
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