Bobcat Corporation Redeems All of Zed's 4,000 Shares and Distributes

question 40

Multiple Choice

Bobcat Corporation redeems all of Zed's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash. Zed's basis in his 20% interest in Bobcat is $100,000 and the stock's value is $250,000. At the time Bobcat is acquired by Van, the accumulated earnings and profits of Bobcat are $200,000 and of Van are $75,000. How does Zed treat this transaction for tax purposes?

• A) No gain is recognized by Zed in this reorganization.
• B) Zed reports a $50,000 recognized dividend.
• C) Zed reports a $50,000 recognized capital gain.
• D) Zed reports a $40,000 recognized dividend and a $10,000 capital gain.
• E) Not enough information is available to determine proper treatment.

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Definitions:

Psychokinesis

The supposed ability to move or manipulate objects with the mind alone, without physical interaction.

Vestibular Sense

The sensory system that contributes to balance and spatial orientation by detecting changes in motion and gravity.

Kinesthesia

The perception of body movements and position sense, often referred to as proprioception.

Sensory Interaction

The principle that one sense may influence another, as when the smell of food enhances its taste.