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Carol, Bonnie, and Ann, sisters, own four hundred...

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Question

Carol, Bonnie, and Ann, sisters, own four hundred (400) shares of stock, four hundred (400) shares of stock and two hundred (200) shares of stock, respectively, in Teal Corporation (Earnings And Profits (E&P) of $800,000). Teal Corporation redeems all of Ann's shares of stock for $120,000. Ann paid $50 a share for the stock five (5) years ago. Carol continued to serve as president of Teal Corporation after the redemption. As a result of this transaction, which of the following is correct? (a) Ann has a Long-Term Capital Gain of $120,000. (b) Ann has a Long-Term Capital Gain of $110,000. (c) Ann has Dividend Income of $120,000. (d) Ann has Dividend Income of $110,000.

 

Paper#4367 | Written in 18-Jul-2015

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