Don Draper transfers cash of $150,000 to Sterling Cooper Corporation, a newly formed corporation, for 100% of the stock in Sterling Cooper Corporation worth $80,000 and debt in the amount of $70,000, payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum. In the first year of operation, Sterling Cooper Corporation has net taxable income of $40,000. If the Corporation pays Don Draper interest of $6,300 and $7,000 principal payment on the note: a. Don has dividend income of $13,300. b. Sterling Cooper Corporation does not have a tax deduction with respect to the payment. c. Don has dividend income of $7,000. d. Sterling Cooper Corporation has an interest expense deduction of $6,300.
