Gold Corporation Sold Its 40% of the Ruby Corporation Common

question 10

Multiple Choice

Gold Corporation sold its 40% of the Ruby Corporation common stock.Gold received $10 million in the year of the sale and a note for $15 million payable in three years with interest at the Federal rate.Gold's basis in the stock was $5 million.Assume that Gold will report the gain by the installment method where the method is permitted.

• A)The installment method is never permitted on the sale of stock.
• B)If Ruby stock is traded on an established securities market, Gold must recognize a $20 million gain in the year of sale.
• C)If the Ruby Corporation stock is not traded on a national exchange, Gold must recognize a $20 million gain.
• D)All of these are true.
• E)None of these is true.

---

Definitions:

Spot Exchange Rate

The current rate for instant purchase or sale of a currency in the exchange market.

Futures Price

The agreed-upon price for a futures contract, which is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future.

Annual Risk-free Rate

The return on investment expected from a risk-free asset over a one-year period.

Futures Price

The agreed price for the future delivery of an asset in a futures contract market.