Which of the Following Is an Incorrect Statement Regarding the Tax

question 45

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 shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
• C)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%)maximum tax rate that applies to dividend income.
• D)The issuing corporation reduces its E & P by the amount of sales proceeds.
• E)None of the above.

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Definitions:

Equipment

denotes tangible assets used in operations, such as machinery or office equipment, which have a useful life beyond one accounting period.

Liability

A company's financial debt or obligations that arise during the course of its business operations.

Expense

An expense constitutes the money spent or cost incurred in an organization's efforts to generate revenue, representing the consumption of assets.

Liability Account

A financial accounting ledger that represents debts or obligations a company owes to others.