six years ago, Arthur transferred property he using in his sole proprietorship to Green corporation for 1,000 shares of green corporation stock in a transaction that qualified under Sec. 351. the assets had a tax basis to her of $200,000 and a fair market value of $500,000 on the date of the transfer. In the current year, Green corporation ( E&P of $750,000 ) redeems 300 shares from Arthur for $120,000 in a transaction that qualifies for a sale or exchange treatment. With respect to the redemption Arthur will have:

1. $120,000 dividend
2. $60,000 dividend
3. $120,000 capital gain
4. $60,000 capital gain