Question 29

Helen, Greg, and Wanda own the stock in HGW Corporation with earnings and profits of $900,000 as follows: Helen, 600 shares; Greg, 400 shares; and Wanda, 1,000 shares. Greg is Helens son, and Wanda is Helens sister. HGW Corporation redeems 400 of Helens shares with a basis of $55,000 for $240,000. Helen purchased the stock three years ago as an investment. With respect to the stock redemption, Helen has:

A. Dividend income of $185,000.

B. Dividend income of $240,000.

C. Long-term capital gain of $185,000.

D. Long-term capital gain of $240,000.

Question 30

JKL Corporation has earnings and profits of $800,000 and has 1,000 shares of stock outstanding. That stock is held 550 shares by Anna and 450 shares by Ellen, who are unrelated individuals. JKL Corporation redeems 200 of Annas shares for $1,000 per share. Anna paid $300 per share for her JKL Corporation stock nine years ago. Which of the following statements is correct with respect to the stock redemption?

A. Anna has dividend income of $200,000.

B. Anna has a long-term capital gain of $140,000.

C. Annas basis in her remaining 350 shares is $60,000.

D. JKL Corporation reduces its E & P by $200,000.