1. X Corporation, a calendar year corporation, began the current year ("Current Year") with Accumulated E&P of $3,000. X' Current E&P for the Current Year is $4,000. X had five shareholders, A, B, C, D and E. They were all unrelated and each owned 40 shares of X' only class of stock outstanding, and each had an adjusted basis of s10 per share ($400 total). During the Current Year: (1) On May 5, X distributed $1,000 cash to each of A, B, C, D and E; (ii) On October 1 (exactly % of the way through the year) X redeemed 20 shares of stock from A in exchange for $16,000 cash; and (iii) On November 1, X redeemed 5 shares of stock from B in exchange for $4,000 cash. a. What income, gain or loss, if any, does A recognize as a result of the October 1 redemption? b. What income, gain or loss, if any, does B recognize as a result of the October 23 redemption? c. What income, gain or loss, if any does C recognize as a result of the May 5 distribution? d. What is X' accumulated E&P at the beginning of the next year? e. How would the solutions to questions b and d change, if at all, if X' current E&P were $40,000 instead of $4,000?

1. X Corporation, a calendar year corporation, began the current year ("Current Year") with Accumulated E&P of $3,000. X' Current E&P for the Current Year is $4,000. X had five shareholders, A, B, C, D and E. They were all unrelated and each owned 40 shares of X' only class of stock outstanding, and each had an adjusted basis of s10 per share ($400 total). During the Current Year: (1) On May 5, X distributed $1,000 cash to each of A, B, C, D and E; (ii) On October 1 (exactly % of the way through the year) X redeemed 20 shares of stock from A in exchange for $16,000 cash; and (iii) On November 1, X redeemed 5 shares of stock from B in exchange for $4,000 cash. a. What income, gain or loss, if any, does A recognize as a result of the October 1 redemption? b. What income, gain or loss, if any, does B recognize as a result of the October 23 redemption? c. What income, gain or loss, if any does C recognize as a result of the May 5 distribution? d. What is X' accumulated E&P at the beginning of the next year? e. How would the solutions to questions b and d change, if at all, if X' current E&P were $40,000 instead of $4,000?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

1. X Corporation, a calendar year corporation, began the current year ("Current Year") with Accumulated E&P of
$3,000. X' Current E&P for the Current Year is $4,000. X had five shareholders, A, B, C, D and E. They were
all unrelated and each owned 40 shares of X' only class of stock outstanding, and each had an adjusted basis of
s10 per share ($400 total). During the Current Year: (i) On May 5, X distributed $1,000 cash to each of A, B, C,
D and E; (ii) On October 1 (exactly ¼ of the way through the year) X redeemed 20 shares of stock from A in
exchange for $16,000 cash; and (iii) On November 1, X redeemed 5 shares of stock from B in exchange for
$4,000 cash.
a. What income, gain or loss, if any, does A recognize as a result of the October 1 redemption?
b. What income, gain or loss, if any, does B recognize as a result of the October 23 redemption?
c. What income, gain or loss, if any does C recognize as a result of the May 5 distribution?
d. What is X' accumulated E&P at the beginning of the next year?
e. How would the solutions to questions b and d change, if at all, if X' current E&P were $40,000
instead of $4,000?

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