Clarece Has The Option Of Receiving 2 Shares Of Common

Clarece has the option of receiving 2 shares of common stock as a stock dividend on the 10 shares of Ramble Company common stock that she owns. She paid $30 per share for her 10 shares. The common stock is now selling for $20 per share. In lieu of receiving the 2 shares, Clarece may elect to receive $40 in cash. Write a memo explaining the tax consequences of Clarece’s options.

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