In 20X5, R Received 20 Shares of Preferred Stock as a Distribution

question 42

Multiple Choice

In 20X5, R received 20 shares of preferred stock as a distribution with respect to his XYZ common.The preferred was worth $10,000 and R assigned a basis of $6,000 to it.At the time of distribution, the corporation had substantial earnings and profits.XYZ redeemed R's preferred stock for $13,000 this year when its earnings and profits were $8,000.R will report

• A)Capital gain of $7,000, and his basis for common will be unaffected.
• B)Dividend income of $7,000, and his basis for common will increase.
• C)Dividend income of $8,000, and his basis for common will increase.
• D)Dividend income of $7,000, and his basis for common will be unaffected.
• E)None of the above

---

Definitions:

Optimal Factor Mix

The most efficient combination of resources and inputs a firm uses to produce goods or services at the lowest cost.

Resource Markets

Markets where productive inputs, such as labor, natural resources, and capital, are bought and sold.

Productivities

The levels of output or efficiency achieved from a set amount of inputs in production or work processes.

Profit-Maximizing

The process where a firm adjusts its production to achieve the highest possible profit given its constraints.