Comet Company Is Owned Equally by Pat and His Sister

question 97

Multiple Choice

Comet Company is owned equally by Pat and his sister Pam, each of whom holds 110 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 55 of her shares for $1,100 per share on December 31, 20X3. Pam's income tax basis in each share is $550. Comet has total E&P of $255,000. What are the tax consequences to Pam because of the stock redemption?

• A)$30,250 capital gain and a tax basis in each of her remaining shares of $550.
• B)$30,250 capital gain and a tax basis in each of her remaining shares of $110.
• C)$60,500 dividend and a tax basis in each of her remaining shares of $110.
• D)$60,500 dividend and a tax basis in each of her remaining shares of $55.

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Definitions:

Structural Encoding

The process of encoding sensory input into memory based mainly on the physical structure and appearance of the stimulus.

Levels-Of-Processing Theory

A framework suggesting that memory retention depends on the depth of processing, with deeper, meaningful processing leading to better recall.

Deep Processing

Deep processing refers to a method of learning that involves engaging with the material on a meaningful level, such as through critical thinking and making connections to existing knowledge.

Chunking

A cognitive strategy that involves breaking down information into smaller, manageable units, making it easier to process and remember.