What are the consequences of the redemption

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Problem 1: Krispy Corporation's 2,000 shares outstanding are owned as follows: Paul, 800 shares; Sandra (Paul's sister), 800 shares; and Greta (Paul's granddaughter), 400 shares. During the current year, Krispy (E & P of $1 million) redeemed 600 shares of Paul's stock for $100,000. If Paul acquired the 800 shares five years ago for $40,000, what are the consequences of the redemption of the 600 shares:

Option 1: Paul has capital gain income of $60,000

Option 2: Paul has tax free return of capital of $100,000

Option 3: Paul has dividend income of $100,000

Option 4: Paul has capital gain income of $70,000

Reference no: EM132831136

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