Choice "a" is correct. A stock dividend is a distribution by a corporation of its own stock to its shareholders. Stock dividends are generally not taxable unless the shareholder has a choice of receiving cash or other property, and the facts indicate that this is a nontaxable 10% dividend. The basis of a nontaxable stock dividend, where old and new shares are identical, is determined by dividing the basis of the old stock by the number of new shares. The calculation is as follows:

Choice "c" is incorrect. This choice divides the original basis of $22,000 by the old number of shares, without considering the 10% stock dividend. [$22,000 / 1,000 = $22/share]

Choice "d" is incorrect. This choice uses the fair market value rather than the proper basis as the allocation base for the stock, but it does use the proper (new) amount of shares after the stock dividend. [$33,000 / 1,100 shares = $30/share]

Choice "b" is incorrect. This answer choice uses the fair market value rather than the proper basis as the allocation base for the stock, and it also improperly uses the old number of shares, without considering the stock dividend. [$33,000 / 1,000 shares = $33/share]