Lupe and Rodrigo, Father and Son, Each Own 50% of the Stock

question 161

Multiple Choice

Lupe and Rodrigo, father and son, each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000) . During the current year, Heron redeems all of Lupe's shares for $250,000. The transaction cannot qualify as a complete termination redemption if:

• A) Lupe received a $250,000 note receivable from Heron in the stock redemption.
• B) Lupe loaned Heron Corporation $50,000 two years following the redemption.
• C) Rodrigo continued to serve on Heron Corporation's board of directors for two years following the redemption.
• D) Three years after the redemption, Lupe inherited Rodrigo's shares in Heron as a result of his son's death.
• E) None of the above.

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Definitions:

Recessions

Periods of economic downturn when output and employment are falling, typically defined as two consecutive quarters of declining gross domestic product.

Consumer Price Index

An index that calculates the overall average price of a range of consumer goods and services, which includes transportation, food, and healthcare provisions.

Overstate

To overstate means to describe or value something in a way that is excessively high or inflated beyond its true worth.

Inflation

How quickly the average price level of goods and services escalates, resulting in reduced purchasing ability.