Torin Inc. has 500,000 shares issued and outstanding. These shares were issued for total consideration of $1,125,000. At a later point in time, Jane Dow acquired 1,000 of these shares at a total cost of $3,500. With respect to Ms. Dow's holding of Torin shares, which of the following statements is NOT correct?

Question

Quizplus · Accepted Answer

If Ms. Dow were to sell her Torin shares for $4,000, she would have a capital gain of $500 ($4,000 - $3,500), which would be taxable. There is no deemed dividend because dividends are paid out of the company's retained earnings, and the information given does not indicate anything about Torin's earnings or dividend payments.

Torin Inc Has 500,000 Shares Issued and Outstanding