Ramon and Sophie are the sole shareholders of Gull Corporation. Ramon and Sophie each have a basis of $100,000 in their 2,000 shares of Gull common stock. When its E & P was $700,000, Gull Corporation issued a preferred stock dividend on the common shares of Ramon and Sophie, giving each 1,000 shares of preferred stock with a par value of $100 per share. At the time of the stock dividend, fair market value of one share of common stock was $150, and fair market value of one share of preferred stock was $75.

If an amount is zero, enter "0".

a. What are the tax consequences of the distribution to Ramon and Sophie?

Ramon and Sophie have________ (dividend income/gain/loss/neither gain or loss) in the amount of $_______.

What is the basis for the preferred stock and common stock for each shareholder?

Preferred stock: $______

Common stock: $______

b. What are the tax consequences to Ramon if he later sells his preferred stock to Anthony for $75,000? Anthony is not related to Ramon.

A sale of the preferred stock to Anthony will produce $_______ of ______ (capital gain/ordinary) income.