Rose Has a $20,000 Basis in the 60% of the Parent

question 3

Multiple Choice

Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns. Parent Corporation owns a 70% interest in Child Corporation. Parent and Child have current and accumulated E&P balances of $25,000 and $40,000, respectively. In return for $15,000, Rose sells 10% of the Parent Corporation stock to Child Corporation. What is the impact of the transaction on Rose?

• A)Rose will recognize a $5,000 capital gain.
• B)Rose will be treated as having received a $15,000 dividend distribution from Child Corporation.
• C)Rose will be treated as having sold stock to Parent Corporation and recognize a $15,000 capital gain.
• D)Rose will be treated as having received a $15,000 dividend from Parent Corporation.

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Definitions:

Unemployment

A state in which a person who is actively seeking employment is unable to find work.

Substitute Marriage Cohabitation

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Premarital Cohabitation

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Dating Cohabitation

Refers to unmarried couples living together in a romantic relationship.