Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns. Parent Corporation owns a 70% interest in Child Corporation. Parent and Child have current and accumulated E&P balances of $25,000 and $40,000, respectively. In return for $15,000, Rose sells 10% of the Parent Corporation stock to Child Corporation. What is the impact of the transaction on Rose?
A)Rose will recognize a $5,000 capital gain.
B)Rose will be treated as having received a $15,000 dividend distribution from Child Corporation.
C)Rose will be treated as having sold stock to Parent Corporation and recognize a $15,000 capital gain.
D)Rose will be treated as having received a $15,000 dividend from Parent Corporation.

Question

Quizplus · Accepted Answer

The Answer of Rose has a $20,000 basis in the 60% of the Parent Corporation stock that she owns. Parent Corporation owns a 70% interest in Child Corporation. Parent and Child have current and accumulated E&P balances of $25,000 and $40,000, respectively. In return for $15,000, Rose sells 10% of the Parent Corporation stock to Child Corporation. What is the impact of the transaction on Rose?
A)Rose will recognize a $5,000 capital gain.
B)Rose will be treated as having received a $15,000 dividend distribution from Child Corporation.
C)Rose will be treated as having sold stock to Parent Corporation and recognize a $15,000 capital gain.
D)Rose will be treated as having received a $15,000 dividend from Parent Corporation.

Rose Has a $20,000 Basis in the 60% of the Parent