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

question 56

Multiple Choice

Bobcat Corporation redeems all of Zeb's 4,000 shares and distributes to him 2,000 shares of Van Corporation stock plus $50,000 cash.Zeb'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 Van's are $75,000.How does Zeb treat this transaction for tax purposes?

• A)No gain is recognized by Zeb in this reorganization.
• B)Zeb reports a $50,000 recognized dividend.
• C)Zeb reports a $50,000 recognized capital gain.
• D)Zeb 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:

Positron Emission Tomography (PET) Scan

A diagnostic imaging test that helps reveal how tissues and organs are functioning by using a radioactive substance called a tracer.

Computerized Tomography (CT) Scan

A medical imaging technique that combines a series of X-ray measurements taken from different angles to produce cross-sectional images of specific areas of the body.

Magnetic Resonance Imaging (MRI)

A non-invasive imaging technology that produces three-dimensional detailed anatomical images using strong magnetic fields and radio waves.

Transcranial Magnetic Stimulation (TMS)

A noninvasive method used to stimulate small regions of the brain using magnetic fields, often used in treating depression.