General Inertia Corporation Made a Pro Rata Distribution of $50,000

question 18

Multiple Choice

General Inertia Corporation made a pro rata distribution of $50,000 to Tiara, Inc. in partial liquidation of the company on December 31, 20X3. Tiara, Inc. owns 500 shares (50%) of General Inertia. The distribution was in exchange for 250 shares of Tiara's stock in the company. After the partial liquidation, Tiara continued to own 50% of the remaining stock in General Inertia. At the time of the distribution, the shares had a fair market value of $200 per share. Tiara's income tax basis in the shares was $100 per share. General Inertia had total E&P of $800,000 at the time of the distribution. What amount of dividend or capital gain does Tiara recognize because of the transaction?

• A) Tiara does not recognize any dividend income or capital gain.
• B) Tiara recognizes capital gain of $50,000.
• C) Tiara recognizes dividend income of $50,000.
• D) Tiara recognizes capital gain of $25,000.

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Definitions:

Brand Loyalty

The tendency of consumers to continue buying the same brand of goods or services, demonstrating a preference over competitors based on positive experiences.

Adoption

The act of starting to use, support, or incorporate something new, such as a technology, idea, or practice.

Awareness Stage

The initial phase of the marketing funnel where potential customers first become acquainted with a product or brand.

Adoption

The act of legally taking another's child and bringing it up as one's own or embracing ideas, methods, or innovations.