Recap Corporation has $100,000 of accumulated earnings and profits and makes a pro rata distribution to each of its ten shareholders of new common voting stock worth $20,000 and new callable preferred stock worth $10,000 in exchange for each shareholder's old common voting stock worth $30,000. Assume that the new Recap preferred stock is not nonqualified preferred stock.

1. What result to the shareholders on the exchange?
2. What result when Recap calls the preferred stock?