Hazel, Emily, and Frank, Unrelated Individuals, Own All of the Stock

question 132

Multiple Choice

Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $1.2 million) as follows: Hazel, 1,500 shares; Emily, 300 shares; and Frank, 200 shares. Wren redeems 900 of Hazel's shares (basis of $210,000) for $625,000. With respect to the distribution in redemption of the stock:

• A) Hazel has a capital gain of $415,000.
• B) Hazel has a capital gain of $625,000.
• C) Hazel has dividend income of $415,000.
• D) Hazel has dividend income of $625,000.
• E) None of these.

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Definitions:

Liable

Being legally responsible or obligated to face the consequences of one's actions, typically in a civil lawsuit.

Res Ipsa Loquitur

A legal doctrine that infers negligence from the very nature of an accident or injury, in the absence of direct evidence of the defendant's fault.

Defendant

An individual, corporation, or entity being sued or accused in a court of law.

Negligence Action

A lawsuit alleging that a party's failure to act with reasonable care resulted in damage or injury to another.