Father owns 40 % of Family Corporation (FC ) Son owns 30 % of FC and Daughter owns 30 % of FC (Father's 2 children areSon and Daughter) Father wants to retire and have Son and Daughter each own 50 % of FC Son and Daughter do not haveenough money to buy Father's shares Father insists that the results of the transaction generate a capital gain for him ratherthan dividend income (Father has a high basis in FC shares.) You suggest that the FC reddem all of Father's shares of FCWhich of the following statements is correct?O A. Because a redemption is the sale of shares to a Corporation, it will alaways result in a capital gainB. II Father becomes Chairman of the Board and President of FC after the redemption, Capital gain treatment will beavailable if the family attribution rules are waivedOC. The redemption of all of Father's shares will result in capital gain treatment because it qualifies as a substantiallydisproportionate redemptionOD. The redemption of all of Father's shares will result in capital gain treatment because it will quality as a completetermination of interest as long as the family attribution rules are waived However, to waive the family attribution rulesFather may not be the Chairman of the Board or President of FCJill owns 600 shares of Cubco , Inc, Detbbie owns 200 shares of Cubco Inc, and Heather owns 200 shares of Cubco, Inc.Jill is Heather's mother Debbie is unrelated to Jill and Hoather. On June 30, 2019, Cubco redeems 250 shares of stockfrom Jill Jill receives $350,000 from Cubco and the stock redeemed has a basis of $300,000 Cubcol has earnings andprofits of $1,000,000 As a result of this redemption what gain or income must Jil recognize ?A. Jill recognizes $50,000 dividond incomeB. Jill recognizes S350,000 of dividend income.C. Jill recognizes $50,000 capital gainD. Jill recognizes $300,000 capital gain. Eva contributes land (capital asset) with a fair market value of $400,000 and a tax basis of S600.000 for 300 shares of EJCorp and a note for $100,000 Josie contributes a warehouse with a fair market value of $800,000 and a tax basis of$200.000 The warehouse is subject to a mortgage of $500,000 which is assumed by EJ Corp Josie receives 300 shares of EJCorp What gain or loss is recognized by Eva and Josie ?OA Eva recognizes no gain or loss , Josie recognizes $600,000 gainB. Eva recognizes no gain or loss, Josie recognizes $300,000 gainC. Eva recognizes $200,000 loss, Josie recognizes no gain or loss.D. Eva recognizes $100,000 loss, Josie recognizas $500,000 gainJosie owns 70 % and Eva 30 % of JE, Inc. ( JEI) Josie sels land with a fair market value of $1,000,000 and a tax basis of$1,300,000 to JEI for $1,000,000 Two yoars later JEI sels the land to an unrelated third party for $1,200,000 What gain orloss do Josie and JEl recognize as a result of these transactions ?A Josie recognizes a $300,000 loss and JEI recognizes a $200,000 gainB. Neither Josie nor JEI recognize any gain or loss.C. Josie recognizes no gain or loss and JEI recognizes a $200,000 gainD. Josie recognizes no gain or toss and JEl recognizes a S100,000 lossO O

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Father owns 40 % of Family Corporation (FC ) Son owns 30 % of FC and Daughtef oWIIS 3U Son and Daughter) Father wants to retire and have Son and Daughter each own 50 % of FC Son and Daughter do not have enough money to buy Father's shares Father insists that the results of the transaction generate a capital gain for him rather than dividend income (Father has a high basis in FC shares.) You suggest that the FC reddom all of Father's shares of FC Which of the following statements is correct? OA. Because a redemption is the sale of shares to a Corporation, it will alaways result in a capital gain. OB. II Father becomes Chairman of the Board and President of FC after the redemption, Capital gain treatment will be available if the family attribution rules are waived OC. The redemption of all of Father's shares will result in capital gain treatment because it qualifies as a substantially disproportionate redemption OD. The redemption of all of Father's shares will result in capital gain treatment because it will quality as a complete termination of interest as long as the family attribution rules are waived However, to waive the family attribution rules, Father may not be the Chaiman of the Board or President of FC

Father owns 40 % of Family Corporation (FC ) Son owns 30 % of FC and Daughtef oWIIS 3U Son and Daughter) Father wants to retire and have Son and Daughter each own 50 % of FC Son and Daughter do not have enough money to buy Father's shares Father insists that the results of the transaction generate a capital gain for him rather than dividend income (Father has a high basis in FC shares.) You suggest that the FC reddom all of Father's shares of FC Which of the following statements is correct? OA. Because a redemption is the sale of shares to a Corporation, it will alaways result in a capital gain. OB. II Father becomes Chairman of the Board and President of FC after the redemption, Capital gain treatment will be available if the family attribution rules are waived OC. The redemption of all of Father's shares will result in capital gain treatment because it qualifies as a substantially disproportionate redemption OD. The redemption of all of Father's shares will result in capital gain treatment because it will quality as a complete termination of interest as long as the family attribution rules are waived However, to waive the family attribution rules, Father may not be the Chaiman of the Board or President of FC

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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