Rocks and Pebbles Corporation distributed preferred stock with a par value of $1,000 and a fair market value of $2,000 as a tax-free stock dividend to a 40 percent common shareholder owning stock worth $6,000 with a basis of $4,000, at a time when E&P was $20,000. If the shareholder sells the preferred stock seven years later for $10,000, she will have the following income: O Dividend income of $8.000, long-term capital gain of $1,000 Long-term capital gain of $9,000 Dividend income of $10,000 O Dividend income of $2,000, long-term capital gain of $7,000

Rocks and Pebbles Corporation distributed preferred stock with a par value of $1,000 and a fair market value of $2,000 as a tax-free stock dividend to a 40 percent common shareholder owning stock worth $6,000 with a basis of $4,000, at a time when E&P was $20,000. If the shareholder sells the preferred stock seven years later for $10,000, she will have the following income: O Dividend income of $8.000, long-term capital gain of $1,000 Long-term capital gain of $9,000 Dividend income of $10,000 O Dividend income of $2,000, long-term capital gain of $7,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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