Sara Owns 80 Percent of the Stock of Lea Corporation

question 82

Multiple Choice

Sara owns 80 percent of the stock of Lea Corporation.Unrelated individuals own the remaining 20 percent.For a stock redemption of Sara's stock to be treated as an exchange under the "substantially disproportionate" test, what percentage of Lea stock must Sara own after the redemption?

• A)Any percentage less than 80 percent.
• B)Any percentage less than 50 percent.
• C)Any percentage less than 64 percent.
• D)All stock redemptions involving individuals are treated as exchanges.

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Definitions:

Indirect Method

A reporting approach used in cash flow statements where net income is adjusted by changes in non-cash accounts to determine cash flow from operating activities.

Net Cash Flow

The difference between a company's cash inflows and outflows within a defined period.

Operating Activities

Part of cash flow that represents the revenues and expenses directly related to the core business operations.

Financial Statements

A set of formal records that outline the financial activities and position of a business, individual, or other entity, typically comprising the balance sheet, income statement, and cash flow statement.