Gold Corporation Sold Its 40% of the Ruby Corporation Common

question 41

Multiple Choice

Gold Corporation sold its 40% of the Ruby Corporation common stock.Gold received $8 million in the year of the sale and a note for $12 million, payable in three years with interest at the Federal rate.Gold's basis in the stock was $2 million.Assume that Gold Corporation will report the gain by the installment method where the method is permitted.

• A)If the Ruby Corporation stock is traded on a national exchange, Gold must recognize $18 million gain in the year of sale.
• B)If the Ruby Corporation stock is not traded on an established market, Gold must recognize a $7,200,000 gain in the year of sale.
• C)If the Ruby Corporation stock is not traded on a national exchange, Gold must pay interest on a portion of the deferred taxes.
• D)All of the above are true.
• E)None of the above is true.

---

Definitions:

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in consumers' income.

Midpoint Method

A technique used in economics to calculate the percentage change in quantity demanded or supplied between two points on a curve, providing an average elasticity for that range.

Cross-Price Elasticity of Demand

A measurement of how the quantity demanded of one good responds to a change in the price of another good, indicating whether they are substitutes or complements.

Cross-Price Elasticity

A measure in economics that shows how the quantity demanded of one good responds to a change in the price of another good.