Five Years Ago, Eleanor Transferred Property She Had Used in Her

question 72

Multiple Choice

Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under § 351. The assets had a tax basis to her of $100,000 and a fair market value of $270,000 on the date of the transfer.In the current year, Blue Corporation ( E & P $800,000) redeems 250 shares from Eleanor for $220,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption, Eleanor will have a:

• A)$195,000 capital gain.
• B)$220,000 capital gain.
• C)$195,000 dividend.
• D)$220,000 dividend.
• E)None of the above.

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Definitions:

Economies of Scale

Companies experience a decrease in the average cost of production as they scale up their operations, resulting in cost efficiencies.

Natural Monopoly

A market condition where due to high fixed costs or unique resources, one firm can supply the entire market more efficiently than if there were multiple firms.

Total Demand

Total demand represents the entire quantity of a particular good or service that all consumers in a market are willing to purchase at various price points over a specific time frame.

Exclusive Right

A legal authorization to be the sole provider or producer of a particular product or service, or to use a specific piece of intellectual property.