Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $8,800, and Clyde owns the remaining 40 shares with a basis of $17,500. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of the following stock redemption transactions will qualify for sale and exchange treatment. Getaway redeems 24 of Bonnie’s shares for $6,000. Getaway has $20,000 of E&P at year-end and Bonnie is unrelated to Clyde. Getaway redeems 24 of Bonnie’s shares for $6,000. Getaway has $20,000 of E&P at year-end and Bonnie is unrelated to Clyde. (Do not round intermediate calculations. Round your answers to the nearest whole number.)
Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $8,800, and Clyde owns the remaining 40 shares with a basis of $17,500. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. Evaluate whether each of the following stock redemption transactions will qualify for sale and exchange treatment.
- Getaway redeems 24 of Bonnie’s shares for $6,000. Getaway has $20,000 of E&P at year-end and Bonnie is unrelated to Clyde.
Getaway redeems 24 of Bonnie’s shares for $6,000. Getaway has $20,000 of E&P at year-end and Bonnie is unrelated to Clyde. (Do not round intermediate calculations. Round your answers to the nearest whole number.)
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My calculations were:
60 shares - 24 = 36 remaining shares
36 shares/76 total shares = 47% remaining ownership. Redemption passes both the 50% test and the 80% test. I show Bonnie will treat her redeemed shares as though she sold them for $6000, resulting in a
($6000 - [(36/76) x $8800])
($6000 - [.47 x $8800]
6000 - 4136
capital gain of $1864. HOWEVER, my web text says I am wrong. What is wrong?
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