John Owns 70% of the May Corporation Stock and 60

question 56

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

---

Definitions:

Risk

The potential for losing something of value, often measured by the variability of returns associated with an investment.

Cash Flow Estimating

The process of projecting the future cash inflows and outflows of a project or company to determine its financial health.

Capital Budgeting

The process businesses use to evaluate potential major projects or investments.

Positive/Negative Analysis

An evaluative process that assesses the positive and negative outcomes or impacts of a decision or situation.