During the current year, Gnatcatcher, Inc., (E & P of $1,000,000) distributed $200,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 32% tax bracket, and each had a $45,000 basis in her redeemed stock.Assume that the distribution to Brandi is a qualifying stock redemption. Determine Brandi’s tax liability on the distribution.Assume that the distribution to Yuen is a non-qualified stock redemption. Determine Yuen’s tax liability on the distribution.

Qualifying stock redemption refers to the concept when the company purchases its own stock under…

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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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During the current year, Gnatcatcher, Inc., (E & P of $1,000,000) distributed $200,000 each to Brandi and Yuen in redemption of some of their Gnatcatcher stock. The two shareholders acquired their shares five years ago. Each shareholder is in the 32% tax bracket, and each had a $45,000 basis in her redeemed stock.
1. Assume that the distribution to Brandi is a qualifying stock redemption. Determine Brandi’s tax liability on the distribution.
2. Assume that the distribution to Yuen is a non-qualified stock redemption. Determine Yuen’s tax liability on the distribution.

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