John Owns 70% of the May Corporation Stock and 60

question 5

Multiple Choice

John owns 70% of the May Corporation stock and 60% of the June Corporation stock. John sells one-half of his interest in May Corporation to June Corporation for $45,000. The E&P accounts of May and June are $25,000 and $35,000, respectively. The result would be that

• A)John has sold his stock and reports a capital gain or loss.
• B)John has sold his stock and reports a capital gain but no loss.
• C)the transaction is treated as a contribution to May's capital and a redemption of June stock.
• D)the sale is recast as a dividend paid to John, first by June and then by May.

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Definitions:

Hyperinflation

An extremely high and typically accelerating rate of inflation, often exceeding 50% per month, leading to a rapid erosion of the real value of local currency.

Discount Rate

The interest rate charged by central banks to financial institutions for short-term loans, influencing monetary policy.

Reserve Requirements

Central banks' mandates on the minimum reserve levels that financial institutions need to uphold for their deposits.

Securities

Securities that signify ownership in a publicly-listed company (stock), a debt obligation to a government entity or a company (bond), or entitlements to ownership conveyed through an option.