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At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock....

At the beginning of the year, Ms. Faro paid $15,000 for 750 shares of Gravois stock. She instructed her broker to reinvest any dividends in additional Gravois shares. Her Form 1099-DIV reported that she earned $820 dividend income which purchased 39 additional shares. Which of the following statements is true?

  • Ms. Faro recognizes no dividend income and has a $15,000 basis in her 789 shares.

  • Ms. Faro recognizes no dividend income and has a $15,820 basis in her 789 shares.

  • Ms. Faro recognizes $820 dividend income and has a $15,820 basis in her 789 shares.

  • None of the above statements is true.

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Answer #1

Correct answer is option C that is Ms. Faro recognizes $820 dividend income and has a $15,820 basis in her 789 shares.

Bcoz the reinvestment is made by Ms faro on her own choice , it's different from company directly paying stock dividend. It's doest matter where she use the amount earned as dividend.

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