Hazel, Emily, and Frank, Unrelated Individuals, Own All of the Stock

question 21

Multiple Choice

Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $1.2 million) as follows: Hazel, 1,300 shares; Emily, 400 shares; and Frank, 300 shares.Wren redeems 300 of Hazel's shares (basis of $60,000) for $450,000.With respect to the distribution in redemption of the stock:

• A)Hazel has a capital gain of $390,000.
• B)Hazel has dividend income of $450,000.
• C)Hazel has dividend income of $390,000.
• D)Hazel has a capital gain of $450,000.
• E)None of the above.

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Definitions:

Direct Materials Cost

Direct materials cost refers to the expenditure on the raw materials that are directly identifiable and allocable to the production of a product.

Overapplied Overhead

This refers to a situation in which the allocated overhead cost is greater than the actual overhead cost incurred.

Predetermined Rate

A rate calculated before the fiscal period begins, used to apply costs to production or operations, often based on labor hours or machine hours.

Predetermined Overhead Rate

A rate calculated at the beginning of the period, used to allocate overhead costs to products based on a specific activity base.