AICPA CPA-Regulation Exam - Topic 1 Question 52 Discussion

Actual exam question for AICPA's CPA-Regulation exam

Question #: 52
Topic #: 1

Elm Corp. is an accrual-basis calendar-year C corporation with 100,000 shares of voting common stock issued and outstanding as of December 28, 1996. On Friday, December 29, 1996, Hall surrendered 2,000 shares of Elm stock to Elm in exchange for $33,000 cash. Hall had no direct or indirect interest in Elm after the stock surrender. Additional information follows:

What amount of income did Hall recognize from the stock surrender?

A$33,000 dividend.

B$25,000 dividend.

C$18,000 capital gain.

D$17,000 capital gain.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. $17,000 capital gain.

Amount realized:

Choices 'a' and 'b' are incorrect. Dividends are distributions of earnings. These proceeds are from the sale of stock.

Choice 'c' is incorrect, per above. Accumulated earnings and profits do not effect the gain calculation, they only affect the taxability of dividends paid to shareholders.

by Lonna at Jul 25, 2022, 02:44 AM

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Vicky

4 months ago

I disagree, it's more like an $18,000 capital gain.

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Sherly

4 months ago

Surprised it's not just a straight cash exchange!

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Thurman

4 months ago

Definitely a capital gain, but not sure about the amount.

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Jose

4 months ago

I think it's actually a $25,000 dividend.

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Magdalene

4 months ago

Hall recognized a $33,000 dividend.

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Doyle

5 months ago

I vaguely remember that if the stock is surrendered for cash, it might be treated as a capital gain, but I can't remember the exact numbers.

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Stephanie

5 months ago

I feel like the cash received is important, but I can't recall how it interacts with the stock basis. Could it be a dividend instead of a capital gain?

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Renea

5 months ago

I think we practiced a similar question where the amount recognized depended on the basis of the stock. Was Hall's basis in the stock $25,000?

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Jerrod

5 months ago

I remember something about stock surrenders and how they can lead to capital gains, but I'm not sure how to calculate the gain here.

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Reuben

5 months ago

This seems like a pretty straightforward question. The Logcat window in Android Studio is used to display system messages and logs, so I'm pretty confident the answer is true.

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Francoise

5 months ago

I think I've got this one! The parameters that apply only to mstore are A and D. I'm confident in that answer, but I'll review it one more time just to be sure.

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Carylon

5 months ago

I feel like there was a practice question similar to this where we talked about spontaneous sharing of information. Maybe option B makes sense too?

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Letha

5 months ago

I think there's a chance it's 10 users, but I really can't remember the specifics.

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