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:

Conditional Indorsements

Endorsements made on a negotiable instrument that specify certain conditions that must be met before the endorsement is considered valid.

Effective

Producing a desired or intended result, often used in contexts relating to efficiency, productivity, or the power to produce a specified effect.

Payee

The individual or entity to whom a payment is directed or owed.

Situation

This is a general term that describes a set of circumstances, context, or condition in which people find themselves or events occur.