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To determine the cost of full and fractional shares issued as a result of stock splits and stock dividends, a portion of the cost basis of the underlying shares on which the split or dividend was paid should be allocated to the new shares received using the figures on the list of stock dividends and stock splits. The cost basis of the underlying shares will then be reduced by the amount allocated to the new shares received.
For example, if the cost of one share of stock acquired prior to the effective date for the 2 for 1 stock split was $100, the cost of the original one share is reduced by 50% as a result of the 2 for 1 stock split and the cost assigned to the one share received from the stock split is 50% of the original cost of the one share. As a result of the stock split and the cost adjustment the stockholder now has two shares, each with a cost basis of $50 a share. A cost adjustment should be made each time the stock splits.
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