D, Inc. had accumulated earnings and profits at January 1 of the current year of $20,000. During the taxable year, it had current earnings and profits of $10,000. On December 31 of the current year, the corporation made a cash distribution of $40,000 to its sole shareholder, G. G paid $25,000 for his stock three years ago.

1. How will G treat the $40,000 he received on December 31?
2. Assume G sold all of his stock for $36,000 on January l of the following year. Compute his capital gain.