Z Corp. has 200 shares of outstanding stock, which are owned by three unrelated individuals as follows: Q owns 120 shares, R own 60 shares, and S owns 20 shares. During the year, Z Corp. redeemed 30 shares from Q for $36,000. Q’s basis for the stock is $100 per share. Z had E&P before the redemption of $35,000. Use the above information to answer the following three questions.

Z's E&P will decrease by

$36,00

$5,250

$8,750

$35,000

None of the above

As a result of the redemption, Q should report

$36,000 dividend income

$21,000 dividend income and $15,000 capital gain

$35,000 dividend income

$6,000 capital gain

None of the above

If Z redeemed 60 shares from Q for $72,000, Z’s E&P will decrease by

$10,500

$35,000

$12,500

$0

None of the above