Julian, Berta, and Maria Own 400 Shares, 400 Shares, and 200

question 159

Multiple Choice

Julian, Berta, and Maria own 400 shares, 400 shares, and 200 shares, respectively, in Caramel Corporation (E & P of $750,000) . Berta is Julian's sister, and Maria is Julian's aunt. Caramel Corporation redeems all of Julian's stock for $420,000. Julian paid $200 a share for the stock five years ago. Julian continued to serve on Caramel's board of directors after the redemption. With respect to the redemption:

• A) Dividend income of $340,000.
• B) Dividend income of $420,000.
• C) Long-term capital gain of $340,000.
• D) Long-term capital gain of $420,000.
• E) None of the above.

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Definitions:

Variable Expenses

Financial obligations that increase or decrease in relation to production scale or sales numbers.

Maximum Price

The highest price at which a product or service can be sold, often determined by market conditions or price controls.

Connector Division

A segment or branch of a company that is responsible for joining or integrating other segments' products or services.

Transmission Division

A specific segment of a company or organization that is focused on the development, production, and maintenance of transmission systems.