To Carry Out a Qualifying Stock Redemption, Turaco Corporation (E

question 63

Multiple Choice

To carry out a qualifying stock redemption, Turaco Corporation (E & P of $800,000) transfers land held for investment purposes to Aida, a shareholder. The land had a basis of $250,000, a fair market value of $400,000, and is subject to a $300,000 liability. Aida has a basis of $70,000 in the shares redeemed. Which of the following is a correct statement regarding the tax consequences of this redemption?

• A) Aida will have $400,000 of dividend income.
• B) Aida will have a $100,000 basis in the land.
• C) Turaco Corporation will recognize a gain of $50,000.
• D) Aida will recognize a gain of $30,000.
• E) None of the above.

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Definitions:

Common Stock

Common stock represents ownership shares in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Par Value

A nominal value assigned to share of stock in the charter of a corporation, unrelated to market value.

Legal Expense

Costs incurred in the process of legal advice, litigation, or other legal services.

Paid-In Capital

Funds raised by a company through the sale of its shares to investors, over and above the par value of these shares.