As of January 1 of the current year,Grouse Corporation has E & P of $300,000.Lilly owns 320 shares of Grouse's common stock (basis of $45,000).On that date,Grouse declares and distributes a nontaxable preferred stock dividend,of which Lilly receives 100 shares.After the dividend,the fair market value of one share of Grouse common stock is $500,and the fair market value of one share of Grouse preferred stock is $200.Two months later,Lilly sells the 100 shares of the preferred stock to an unrelated individual for $20,000.
a.What are Lilly's tax consequences resulting from the sale of the preferred stock?
b.What is the effect on Grouse's E & P as a result of the sale of the preferred stock?

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The Answer of As of January 1 of the current year,Grouse Corporation has E & P of $300,000.Lilly owns 320 shares of Grouse's common stock (basis of $45,000).On that date,Grouse declares and distributes a nontaxable preferred stock dividend,of which Lilly receives 100 shares.After the dividend,the fair market value of one share of Grouse common stock is $500,and the fair market value of one share of Grouse preferred stock is $200.Two months later,Lilly sells the 100 shares of the preferred stock to an unrelated individual for $20,000.
a.What are Lilly's tax consequences resulting from the sale of the preferred stock?
b.What is the effect on Grouse's E & P as a result of the sale of the preferred stock?

As of January 1 of the Current Year,Grouse Corporation Has