Which of the Following Is an Incorrect Statement Regarding the Tax

question 34

Multiple Choice

Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?

• A)No loss is recognized on the sale.
• B)The issuing corporation reduces its E & P by the amount of sales proceeds.
• C)The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
• D)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%)maximum tax rate that applies to dividend income.
• E)None of the above.

---

Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred, ensuring compliance with the matching principle.

Condensed Worksheet

A summarized form of a financial worksheet used for internal management purposes.

Accrual Basis

An accounting method that recognizes revenue when earned and expenses when incurred, regardless of when cash is exchanged.

Wages Expense

The cost incurred by a company for the work performed by its employees, reflected in its financial statements.