LO.1, 3 Mia, the sole shareholder of Penguin Corporation, sold her Penguin stock to Sophia on July 30 for $400,000. Mia’s basis in the stock was $300,000 at the beginning of the year. Penguin reported accumulated E & P of $220,000 on January 1 and current E &

P of $340,000. During the year, Penguin made the following distributions: $600,000 cash to Mia on July 1 and $200,000 cash to Sophia on December 30.

How are Mia and Sophia taxed on the distributions? How much gain does Mia recognize on the sale of her stock to Sophia?