Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken. The stock’s FMV on Ken’s date of death was $90,000. Ken’s basis in the stock was $40,000. Jack Corporation had an E&P balance of $300,000. If the redemption qualifies under Sec. 303, Junior will

recognize a capital gain of $10,000.
recognize a capital gain of $60,000.
recognize $100,000 in dividend income.
recognize dividend income of $50,000 and a capital gain of $10,000.