Renee, the Sole Shareholder of Indigo Corporation, Sold Her Stock

question 112

Multiple Choice

Renee, the sole shareholder of Indigo Corporation, sold her stock to Chad on July 1 for $180,000. Renee's stock basis at the beginning of the year was $120,000. Indigo made a $60,000 cash distribution to Renee immediately before the sale, while Chad received a $120,000 cash distribution from Indigo on November 1. As of the beginning of the current year, Indigo had $26,000 in accumulated E & P, while current E & P (before distributions) was $90,000. Which of the following statements is correct?

• A) Renee recognizes a $60,000 gain on the sale of the stock.
• B) Renee recognizes a $64,000 gain on the sale of the stock.
• C) Chad recognizes dividend income of $120,000.
• D) Chad recognizes dividend income of $30,000.
• E) None of the above.

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Definitions:

Modern Factory System

An approach to manufacturing that involves large-scale, mechanized production methods, often under one roof or within one facility, leading to the increased efficiency and production output.

Marginalism

An economic principle that deals with the additional or marginal changes in costs and benefits for a unit increase or decrease in production or consumption.

Scarce Resources

Natural or human-made assets that have limited availability, which makes the allocation of these resources a fundamental economic challenge due to competing needs and desires.

Additional Costs

Expenses that are not initially projected or expected in the budget.