Bobcat Corporation Redeems All of Zed's 4,000 Shares and Distributes

question 40

Multiple Choice

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

• A) No gain is recognized by Zed in this reorganization.
• B) Zed reports a $50,000 recognized dividend.
• C) Zed reports a $50,000 recognized capital gain.
• D) Zed reports a $40,000 recognized dividend and a $10,000 capital gain.
• E) Not enough information is available to determine proper treatment.

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Definitions:

Abilities

The natural or acquired skills and talents that enable individuals to perform tasks effectively.

Strategic

Relating to the identification of long-term or overall aims and interests and the means of achieving them, often within a business or organizational context.

Human Resource Management

The strategic approach to the effective management of people in an organization, focusing on maximizing employee performance.

Senior Executive

A top-level manager or officer in an organization, typically responsible for making strategic decisions and overseeing the entire operation.