Lupe and Rodrigo, Father and Son, Each Own 50% of the Stock

question 161

Multiple Choice

Lupe and Rodrigo, father and son, each own 50% of the stock outstanding of Heron Corporation (E & P of $400,000) . During the current year, Heron redeems all of Lupe's shares for $250,000. The transaction cannot qualify as a complete termination redemption if:

• A) Lupe received a $250,000 note receivable from Heron in the stock redemption.
• B) Lupe loaned Heron Corporation $50,000 two years following the redemption.
• C) Rodrigo continued to serve on Heron Corporation's board of directors for two years following the redemption.
• D) Three years after the redemption, Lupe inherited Rodrigo's shares in Heron as a result of his son's death.
• E) None of the above.

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Definitions:

Unsecured Creditors

Creditors who have lent money without any specific collateral, standing at a higher risk in case of the debtor's bankruptcy.

Bankruptcy Petition

A formal request filed in court by an entity or individual seeking relief from their debts under the laws of bankruptcy.

Unsecured Liabilities

Obligations or debts of a company that are not backed by collateral, making them riskier for lenders.

Priority

The established precedence or importance assigned to a task, project, or obligation, influencing the order or sequence of actions.