Preparation of Financial Statements

Sonny Corporation has made paint and paint brushes for the past ten years. Sonny Corporation is owned equally by George, an individual, and Oak Corporation. Sonny Corporation has $100,000 of accumulated and current E&P. Both George and Oak Corporation have a basis in their stock of $10,000. Sonny Corporation discontinues the paint brush operation and distributes assets worth $10,000 each to George and Oak Corporation in redemption of 20% of their stock. Due to the distribution, George and Oak Corporation must report: George Oak Corporation $10,000 dividend $10,000 dividend $10,000 dividend $8,000 capital gain $8,000 capital gain $8,000 capital gain $8,000 capital gain $10,000 dividend