Eli owned 40% of Zuess Corporation's only class of stock outstanding. Theremaining 60% of Zuess's stock was owned by Fred (not related to Eli). Zuessredeemed all of Eli's stock for $60,000 and one-half of Fred's stock for $45,000.Eli's and Fred's basis in their stock was $20,000 and $30,000, respectively.Zuess's earnings and profits were $150,000. Assuming that no partialliquidation occurred, what is the amount and nature of Eli's and Fred'srecognized gain?

D) Eli has a $40,000 capital gain and Fred has a $45,000 dividend.

A) Eli has a $40,000 capital gain and Fred has a $30,000 dividend.

B) Eli has a $60,000 dividend and Fred has a $45,000 dividend.

C) Eli has a $60,000 capital gain and Fred has a $45,000 capital gain.