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Beola and Leona, individuals, own all of the outstanding stock of Carl Corporation. Each has a...

Beola and Leona, individuals, own all of the outstanding stock of Carl Corporation. Each has a basis of $20,000 in their twenty (20) shares of stock. Carl Corporation has Accumulated Earnings And Profits (E&P) of $1,000,000. Beola wishes to retire in the current year and wants to sell her stock for its Fair Market Value of $600,000. Leona would like to purchase Beola's shares and, thus, become the sole shareholder of Carl Corporation but does not have any available Cash. To this effect, Carl Corporation distributes $600,000 to Leona who in turns pays the $600,000 to Beola for all of her stock. As a result, which of the following is correct?

Beola has Dividend Income of $600,000.

Beola has a Long-Term Capital Gain of $580,000.

Leona has Dividend Income of $580,000.

Leona has no Income as a result of the transactions.
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Answer #1

Answer:-

In Case of Corporation, There Should be Minimum Capital add up to be kept up.

Here After Beola Retirement, Leona can be the sole investor, yet there is no base capital in the partnership so I think this choice isn't right. Since in the event of company all the gatherings of the association ought to get benefits in the proportion of their capital commitment. here Leona has no salary for this situation.

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