Stone Corporation, a C Corp., is owned by two individuals: S and J, who each own

Question

Stone Corporation, a C Corp., is owned by two individuals: S and J, who each own 50% of the Corporation. One-half of S’s shares are redeemed by the corporation for $75,000. S’s basis in the redeemed share is $15,000. Stone Corporation has $500,000 of E&P. Which of the following statements (a-d) is true?

A. S will report a capital gain of $75,000.

B. S will report a dividend of $75,000.

C. S will report a dividend of $125,000.

D. S will report a capital gain of $60,000.

E. None of the above is true.

Explanation / Answer

And is D= S will report Capital Gain of $60,000

Capital Gain =Redemption Value-Cost=75,000-15,000=60,000

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