At the beginning of the current year ACME, Inc. has two shareholders: Shareholder 1 owns 60% of the stock and Shareholder 2 40%.  Shareholder 1 has a basis in their stock of $200,000 and Shareholder 2 has basis of $150,000. The shareholders are not related to one another.  ACME’s Current E&P for the year is $500,000. During the year ACME makes the following stock redemptions: Redemption 1: Purchases 10% of each of the shareholders shares for a total of $100,000 (split equally). Shareholder 1’s basis in the stock sold was $20,000 and shareholder 2 is $10,000. Redemption 2: Purchase all of shareholder 2’s remaining shares for $150,000. Required:  How much does shareholder 2 include in their income for the year as a result of the two redemptions?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

At the beginning of the current year ACME, Inc. has two shareholders: Shareholder 1 owns 60% of the stock and Shareholder 2 40%.  Shareholder 1 has a basis in their stock of $200,000 and Shareholder 2 has basis of $150,000. The shareholders are not related to one another.  ACME’s Current E&P for the year is $500,000.

During the year ACME makes the following stock redemptions:

Redemption 1: Purchases 10% of each of the shareholders shares for a total of $100,000 (split equally). Shareholder 1’s basis in the stock sold was $20,000 and shareholder 2 is $10,000.

Redemption 2: Purchase all of shareholder 2’s remaining shares for $150,000.

Required:  How much does shareholder 2 include in their income for the year as a result of the two redemptions?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 1 images

Blurred answer
Knowledge Booster
Corporate Distributions and Adjustments
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education