Which of the Following Is an Incorrect Statement Regarding the Tax

question 90

Multiple Choice

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock disposition?

• A) In a sale of § 306 stock, the shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date it was acquired in the stock dividend.
• B) No loss is recognized on a sale of § 306 stock.
• C) The issuing corporation's E & P is not reduced by a sale of § 306 stock.
• D) In a redemption of § 306 stock, the shareholder generally recognizes dividend income equal to the amount of the redemption proceeds.
• E) None of these.

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Definitions:

Service Cost Component

The element of pension expense that represents the present value of benefits attributed by the pension plan formula to employee service during the period.

Defined Benefit Pension Plan

A type of pension plan where an employer promises a specified pension payment upon retirement, based on the employee's earnings history and tenure.

Return On Plan Assets

A measure of the earnings generated from the investments within a pension fund, indicating the efficiency and performance of the asset management.

Pension Expense

The cost recognized in an employer's financial statements for the benefits provided to employees during a period.