On April 1, Delta Corporation Distributes $120,000 in Cash to Each

question 29

Essay

On April 1, Delta Corporation distributes $120,000 in cash to each of its two equal shareholders, Sarah and Matt. At the time of the distribution, Delta's E&P is $160,000. Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000. How are the distributions characterized to Sarah and Matt? Be specific.

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Definitions:

Deceptive Pricing

Pricing practices intended to mislead or trick consumers about the actual cost of a product or service.

Federal Trade Commission

A United States government agency aimed at promoting consumer protection and eliminating harmful anti-competitive business practices.

Legislation

Laws that have been enacted by a government or legislative body.

Predatory Pricing

A sales strategy involving setting prices unsustainably low with the intention to eliminate competition, deemed unethical and often illegal.