General Inertia Corporation Made a Distribution of $50,000 to Henry

question 80

Multiple Choice

General Inertia Corporation made a distribution of $50,000 to Henry Tiara in partial liquidation of the company on December 31, 20X3. Henry owns 500 shares (50%) of General Inertia. The distribution was in exchange for 250 shares of Henry's stock in the company. After the partial liquidation, Henry continued to own 50% of the remainingstock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Henry's income tax basis in the shares was $100 per share. GeneralInertia had total E&P of $800,000 at the time of the distribution. What are the taxconsequences to Henry because of the transaction?

• A) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $200 per share.
• B) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $200 per share.
• C) Henry has capital gain of $25,000 and a tax basis in his remaining shares of $100 per share.
• D) Henry has dividend income of $50,000 and a tax basis in his remaining shares of $100 per share.

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Definitions:

Graphic Rating Scales

A method used in performance appraisals where employees are rated based on predefined criteria using a visual scale such as numbers or symbols.

Critical-Incident Technique

A method used to gather facts about significant occurrences that have a positive or negative impact, aiding in problem-solving and decision-making processes.

Multiperson Comparisons

A process where the performance, abilities, or needs of multiple individuals are evaluated against each other.

Performance Appraisal

refers to the process of evaluating employee performance against predefined benchmarks or objectives, often influencing promotions, pay raises, and development.