Question

QUESTION 2 Freddie and Helen Individuals own all of the outstanding stock of Point Blank Corporation Each has a basis of 530.000 is the only (20) shares of stock point and Corporation has Camings And Profs (EAP) $1.000.000 Freddie wishes to retire in the current year and wants to sell her stock for its Fal Mare Vase of 5400.000 Helen would be to purchase Freddie's shares and thus become the role whole of Point Blank Corporation but does not have any walable Cash To this effect, Point Blank Corporation des 100.000 to Helen who in humpays 15400,000 to Fredde for all of her stock. As a resut which of the following is con Helen has and income of $400.000 Helenas Long Term Capital Gain of 5370,000 O Freddhas Dividend income of 500.000 O Freddie has Long-Term Capital Gain of 400,000

Answer 1

The answer is A. Helen has a dividend income of $400,000

All other options are incorrect since, Freddie's share is acquired by Helen and hence there is no capital gain fot Helen. However the capital gain for Freddie should be 370,000 (400,000 - 30,000). This is because, Freddie has paid 30,000 for the share. Further, the payment is for acquiring stake and hence cant be termed as dividend for Freddie.