George transfers cash of $150,000 to Grouse Corporation, a newly formed corporation, for 100% of the stock in Grouse worth $80,000 and debt in the amount of $70,000, payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum. In the first year of operation, Grouse has net taxable income of $40,000. If Grouse pays George interest of $6,300 and $7,000 principal payment on the note, (Points : 5)

George has dividend income of $13,300.

Grouse Corporation does not have a tax deduction with respect to the payment.

George has dividend income of $7,000.

Grouse Corporation has an interest expense deduction of $6,300.

None of the above