Boris Owns 60 of the 100 Shares Outstanding of Bread

question 13

Multiple Choice

Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock. His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000. Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000. Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000. In applying the substantially disproportionate test to determine if this is a sale or a dividend, Boris is treated as owning how many shares of Bread after the sale?

• A)30 shares
• B)54 shares
• C)60 shares
• D)80 shares

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Definitions:

Incremental Costs

Additional costs that a company incurs when increasing its production or activities over a certain threshold.

SBU

Strategic Business Unit; a semi-autonomous unit within a firm that focuses on a specific market segment or product line.

Cash Cow

A business, product, or asset that consistently generates significant amounts of cash flow, often requiring little investment to maintain.

Strategy and Structure

Refers to the alignment of an organization's strategic goals with its structural design to enhance efficiency, effectiveness, and competitive advantage.