Seven Years Ago, Eleanor Transferred Property She Had Used in Her

question 110

Multiple Choice

Seven years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 2,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $400,000 and a fair market value of $700,000 on the date of the transfer. In the current year, Blue Corporation (E & P of $1 million) redeems 600 shares from Eleanor for $260,000 in a transaction that does not qualify for sale or exchange treatment. With respect to the redemption, Eleanor will have a:

• A) $140,000 dividend.
• B) $260,000 dividend.
• C) $140,000 capital gain.
• D) $260,000 capital gain.
• E) None of the above.

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Definitions:

Research And Development

A business or government activity that involves the study and creation of new products, services, or discoveries.

LRAC Curve

Long-Run Average Cost Curve, showing the lowest average cost at which a firm can produce any given level of output in the long term.

Natural Monopolist

A type of monopoly that occurs when a single firm can supply a product or service to an entire market at a lower cost than two or more firms could.

Market Demand Curve

A graphical representation that shows the relationship between the price of a good and the total quantity demanded by all consumers in the market.