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

question 98

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 $300,000 and a fair market value of $450,000 on the date of the transfer.In the current year,Blue Corporation (E & P of $600,000) redeems 200 shares from Eleanor for $190,000 in a transaction that qualifies for sale or exchange treatment.With respect to the redemption,Eleanor will have a:

• A)$130,000 dividend.
• B)$190,000 dividend.
• C)$130,000 capital gain.
• D)$190,000 capital gain.
• E)None of the above.

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Definitions:

Venture Capital Firms

Investment companies that provide funding to start-up companies and small businesses with perceived long-term growth potential.

High-tech Industries

Sectors that are heavily involved in the development and production of technology, including computing, telecommunications, and biotechnology.

Double-Entry Accounting

An accounting system in which every business transaction is recorded in an asset account and a liability or owner’s equity account so that the system will balance.

Owner's Equity

The residual interest in the assets of a company after subtracting liabilities, often referred to as shareholder's equity in a corporation.