Required informationProblem 18-67 (LO 18-5) (Algo)[The following information applies to the questions displayed below]Nail Corporation made a distribution of $589,110 to Rusty in partial liquidation of the company on December 31 of this year.Rusty, an individual, owns 100 percent of Nail Corporation. The distribution was in exchange for 50 percent of Rusty'sstock in the company. At the time of the distribution, the shares had a fair market value of $219 per share. Rusty's tax basisin the shares was $50 per share. Nail had total E&P of $8,485,000 at the time of the distribution.Problem 18-67 Part a (Algo)a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty because of the partialliquidation?Answer is complete but not entirely correct.Capital gain$ 224 pershare

Partial liquidation - is related to the distribution made by a company due to the redemption of a…

Answered: a. What are the amount and character…

a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty because of the partial liquidation?

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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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

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