Salamander Co.transferred a small piece of land to one of its shareholders as a dividend in kind.The land originally cost $50,000 and had a fair market value of $175,000 at the time of the transfer.The corporation will realize ________, and the shareholder will realize ________.
A)no tax effect; a dividend of $125,000.
B)a dividend of $125,000; no tax effect.
C)a capital gain of $125,000; a dividend of $175,000.
D)a capital gain of $50,000; a dividend of $125,000.

Question

Quizplus · Accepted Answer

The corporation will realize a capital gain of $125,000, which is the difference between the fair market value ($175,000) and the original cost ($50,000). The shareholder will realize a dividend of $175,000, which is the fair market value of the land at the time of the transfer.