Hazel, Emily, and Frank, Unrelated Individuals, Own All of the Stock

question 158

Multiple Choice

Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $1.2 million) as follows: Hazel, 1,500 shares? Emily, 300 shares? and Frank, 200 shares. Wren redeems 900 of Hazel's shares (basis of $210,000) for $625,000. With respect to the distribution in redemption of the stock:

• A) Hazel has a capital gain of $415,000.
• B) Hazel has a capital gain of $625,000.
• C) Hazel has dividend income of $415,000.
• D) Hazel has dividend income of $625,000.
• E) None of the above.

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Definitions:

Average Total Cost

The sum of all production expenses (both constant and changeable) divided by the total amount of products made.

Marginal Cost

The cost of producing one additional unit of a good, important for decision-making in production processes.

Marginal Revenue

Marginal revenue is the additional income generated from selling one more unit of a good or service.

Profit-Maximizing

A method or plan designed to maximize profits from business activities.