Rocks and Pebbles Corporation distributed preferred stock with a par value of $1,000 and a fair...

 

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Rocks and Pebbles Corporation distributed preferred stock with a par value of $1,000 and a fair market value of $2,000 as a tax-free stock dividend to a 40 percent common shareholder owning stock worth $6,000 with a basis of $4,000, at a time when E&P was $20,000. If the shareholder sells the preferred stock seven years later for $10,000, she will have the following income: Dividend income of $8,000, long-term capital gain of $1.000 Long-term capital gain of $9,000 Dividend income of $10,000 O Dividend income of $2,000, long-term capital gain of $7,000 Rocks and Pebbles Corporation distributed preferred stock with a par value of $1,000 and a fair market value of $2,000 as a tax-free stock dividend to a 40 percent common shareholder owning stock worth $6,000 with a basis of $4,000, at a time when E&P was $20,000. If the shareholder sells the preferred stock seven years later for $10,000, she will have the following income: Dividend income of $8,000, long-term capital gain of $1.000 Long-term capital gain of $9,000 Dividend income of $10,000 O Dividend income of $2,000, long-term capital gain of $7,000

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