Discuss AICPA CPA-Regulation Exam Topic 1 Question 52

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.

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.

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13 comments · newest first

Vicky 11 months ago

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

Sherly 11 months ago

Surprised it's not just a straight cash exchange!

Thurman 12 months ago

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

Jose 12 months ago

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

Magdalene 12 months ago

Hall recognized a $33,000 dividend.

Doyle 1 year 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.

Stephanie 1 year 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?

Renea 1 year 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?

Jerrod 1 year 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.

Reuben 1 year 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.

Francoise 1 year 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.

Carylon 1 year 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?

Letha 1 year ago

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

AICPA CPA-Regulation Exam - Topic 1 Question 52 Discussion