Rona Owns 3% of Theta Corporation and Has a Basis

Multiple Choice

Rona owns 3% of Theta Corporation and has a basis of $500 in her stock. During the year, Theta distributes a $40,000 taxable dividend and a $30,000 nontaxable dividend. As a result of the dividend, Rona has

A) $1,200 of dividend income and a $400 capital gain.
B) $ 300 of dividend income.
C) $1,200 of dividend income and a $900 tax free return of capital.
D) $1,200 of dividend income and no capital gain.
E) $ 500 capital gain.