Diana, the sole shareholder of Charles Corporation stock, owns 1,000 shares, which she purchased 18 years ago. Diana's basis in the stock is $2 million. During the current year, Charles, which had earnings and profits of $5 million, redeemed 900 shares for $4.5 million. What are the amount and the character of

Diana, the sole shareholder of Charles Corporation stock, owns 1,000 shares, which she purchased 18 years ago. Diana's basis in the stock is $2 million. During the current year, Charles, which had earnings and profits of $5 million, redeemed 900 shares for $4.5 million. What are the amount and the character of

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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All of the stock in Green Corporation (E & P of $240,000) is held by three unrelated individuals as follows: Rashad has 15 shares, Keshia has 15 shares, and Jose owns 20 shares. Green Corporation redeems 10 of Jose’s shares (basis of $36,000) for $40,000. If Jose’s stock is a capital asset and has been held for the requisite holding period, he has a long-term capital gain of $4,000 Group of answer choices True False
Liam, a shareholder in Lager, Inc., (a C corporation), would like to sell 800 of his shares of stock in Lager. Since Lager is not traded on an exchange, the only way to sell is the stock is by having Lager redeem the stock. The fair market value of the 800 shares of stock is $200,000. Liam purchased the stock 10 years ago for $95/share. Lager has E&P of $700,000. The corporate stock in Lager is held as follows: Liam 2,000 shares Jennifer (Liam’s sister) 2,000 shares Katherine (Liam’s mother) 2,000 shares Beer Partnerships (Liam has a 30% interest) 4,000 shares 10,000 shares How do you calculate the 800 shares of Liam’s stock to be treated as a qualified stock redemption or will it be treated as a distribution?
Rare Corporation has accumulated E&P of $2,000,000. The corporation has 1,000 shares of common stock outstanding and owned by unrelated parties as follows: Julie, 500 shares and Jim, 500 shares. Julie and Jim each paid $200 per share for Rare stock 15 years ago. At the end of the year, Rare distributes securities (fair market value $250,000 and adjusted basis of $140,000) to Julie in redemption of 200 share of her stock. How much tax will Julie owe as a result of the redemption? Assume Julie is in the 37% tax bracket.
Tammy bought 100 shares of stock on January 30, 2021 when the share price was $20. She sold the stock for $24 a share on January 31, 2022. What is the gain or loss from this transaction? Is it a long- or short-term capital gain or loss?
Marilyn owns 100% of the stock of Lilac, Inc., with an adjusted basis of $45,000. She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. A. What is Marilyn’s dividend income? B. What is Marilyn’s recognized gain or loss? c. What is Marilyn’s adjusted basis for her stock after the distribution?
At her death, Chow owned 55% of the stock in Finch Corporation, with the balance held by family members. In the past five years, Finch has earned average net profits of $1,740,000, and on the date of Chow's death, the book value of its stock is $4,350,000. An appropriate rate of return for Finch’s business is in is 10.85%. Question Content Area If required, round your intermediate computations to the nearest dollar. a. If goodwill exists, the total value of Finch stock is ____________What value would the IRS argue that the stock Chow owned should be included in her estate?___________
William owns 200 shares of Data General stock. He purchased the stock for $20 a share. He sold her stock for $25 a share. The commissions required to buy and sell his stock totaled $130. Assuming that He received no dividends during the time she owned the stock, what is his total return for this transaction?
Daniel is the sole shareholder in Helio, Inc., a calendar-year corporation. After operating as a C corporation for 5 years, Helio, Inc, elected S corporation status in 2015. At the beginning of 2021, Daniel had a stock basis in Hello of $100,000, an accumulated adjustments account (AAA) balance of $25,000, and accumulated earnings and profits of $15,000. This year, Daniel receives a $50,000 distribution. Per his k-1 from Helio, Inc., Daniel has a $4,000 long term capital gain and $10,000 of non-separately stated income. a. Determine Daniel's ending balance in AAA, AEP and stock basis. b. How much income, gain or loss with Daniel have as a result of his interest in Helio, inc.? Be specific. c. Daniel said, "I'm so happy that converted from being a C corporation to an 5-corporation-since I know that I can get the $50,000 cash out of the business without tax. During the C corp days, the $50,000 would have been subject to a 21% tax." How would you respond to Daniel?
WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT’s ordinary income for the year was $232,000. Required:What portion of this income must each shareholder include in income? (Assume 365 days in a year. Round income per day of ownership to 4 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amount.)
2.
On May 9, 2018. Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as section 1244 stock( at the time Calvin acquired his stock, the corporation has $900,000 of paid in capital). On January 15, 2020, Calvin sold all of his Hobbes stock for $7,000. Assuming that Calvin is single, determine his tax consequences as a result of this sale.
WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT's ordinary income for the year was $208,000. Required: What portion of this income must each shareholder include in income? Note: Assume 365 days in a year. Round income per day of ownership to 4 decimal places. Round other intermediate calculations and final answers to the nearest whole dollar amount. Brother's income Daughter's income Mr. Wallace's income Amount