Bargain Purchase
Response to the following problem:
Dan, president of Sugarman Corporation, was given the opportunity to buy 1,000 shares of the corporation's stock for $120 per share. The par value of the stock was $100. Dan took advantage of this offer and purchased 100 shares of stock at a time when the stock was selling for $150 per share. Dan includes as income the difference between the FMV of the stock and his cost. The company also gave Dan an additional 100 shares of stock as a bonus when the stock was selling for $160 per share.
a. What amount of income must Dan recognize as a result of these stock acquisitions?
b. What is Dan's per-share basis in the stock he acquired?