Jamestown, Inc. is family-owned C-corporation whose stock is not traded on an exchange. Jamestown, Inc. stock is owned as follows: ● Virginia 6,000 shares Miles 8,000 shares John 2,000 shares Hope 4,000 shares ● Z corporation 3,000 shares VM partnership 2,000 shares ● Total shares issued & outstanding 25,000 shares Virginia would like to redeem 3,000 shares of her stock. The stock has a fair market value of $500,000 and Virginia has a basis of $150/share for her stock. Here are the relationships Virginia has with the other shareholders of Jamestown, Inc.: Miles is Virginia's older brother John is Virginia's father Hope is Virginia's sister ● Virginia owns 60% of the stock of Z corporation Virginia has a partnership interest of 30% in VM partnership. a. How many shares of stock is Virginia deemed to own in Jamestown, Inc. b. Assume that Virginia is in the 37% tax bracket. How much tax would Virginia owe if the transaction above (i.e. the redemption of 3,000 share of her Jamestown stock) occurs? C. You are Virginia's tax advisor and you know that Virginia would like to minimize her tax liability. In addition, Virginia has a long-term capital loss carryforward of $20,000. Could you offer another option to Virginia? Be as specific as possible in explaining the tax implications of your plan.
Jamestown, Inc. is family-owned C-corporation whose stock is not traded on an exchange. Jamestown, Inc. stock is owned as follows: ● Virginia 6,000 shares Miles 8,000 shares John 2,000 shares Hope 4,000 shares ● Z corporation 3,000 shares VM partnership 2,000 shares ● Total shares issued & outstanding 25,000 shares Virginia would like to redeem 3,000 shares of her stock. The stock has a fair market value of $500,000 and Virginia has a basis of $150/share for her stock. Here are the relationships Virginia has with the other shareholders of Jamestown, Inc.: Miles is Virginia's older brother John is Virginia's father Hope is Virginia's sister ● Virginia owns 60% of the stock of Z corporation Virginia has a partnership interest of 30% in VM partnership. a. How many shares of stock is Virginia deemed to own in Jamestown, Inc. b. Assume that Virginia is in the 37% tax bracket. How much tax would Virginia owe if the transaction above (i.e. the redemption of 3,000 share of her Jamestown stock) occurs? C. You are Virginia's tax advisor and you know that Virginia would like to minimize her tax liability. In addition, Virginia has a long-term capital loss carryforward of $20,000. Could you offer another option to Virginia? Be as specific as possible in explaining the tax implications of your plan.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**Jamestown, Inc. Stock Ownership and Redemption Scenario**
Jamestown, Inc. is a family-owned C-corporation whose stock is not traded on an exchange. The stock ownership is distributed as follows:
- **Virginia:** 6,000 shares
- **Miles:** 8,000 shares
- **John:** 2,000 shares
- **Hope:** 4,000 shares
- **Z Corporation:** 3,000 shares
- **VM Partnership:** 2,000 shares
**Total shares issued & outstanding:** 25,000 shares
**Virginia's Stock Redemption Plan:**
Virginia plans to redeem 3,000 shares of her stock. The fair market value of the stock is $500,000, and Virginia's basis for her stock is $150/share. Below are the relationships and ownership interests Virginia has with the other shareholders:
- **Miles** is Virginia’s older brother.
- **John** is Virginia’s father.
- **Hope** is Virginia’s sister.
- Virginia owns **60%** of the stock of **Z Corporation**.
- Virginia has a **30%** partnership interest in **VM Partnership**.
### Questions and Analysis
#### (a) How many shares of stock is Virginia deemed to own in Jamestown, Inc.?
**Deemed Ownership:**
- Virginia’s direct ownership: 6,000 shares
- Indirect ownership:
- Miles (brother): 8,000 shares
- John (father): 2,000 shares
- Hope (sister): 4,000 shares
- Z Corporation (60% of 3,000 shares): 1,800 shares
- VM Partnership (30% of 2,000 shares): 600 shares
**Total deemed ownership:**
\[ 6,000 + 8,000 + 2,000 + 4,000 + 1,800 + 600 = 22,400 \text{ shares} \]
#### (b) Tax Calculation for Virginia:
Assume Virginia is in the 37% tax bracket. The tax owed if the redemption of 3,000 shares occurs is calculated as follows:
- **Fair Market Value (FMV) of redeemed stock:** $500,000
- **Basis for the redeemed stock:** 3,000 shares \* $150/share = $450,000
- **Capital Gain:** $500,000 - $](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1f2be53b-7501-49f7-b055-001a4dce6009%2F6f34462b-3b20-40be-931c-39dff19689fe%2Fflrh9i_processed.png&w=3840&q=75)
Transcribed Image Text:**Jamestown, Inc. Stock Ownership and Redemption Scenario**
Jamestown, Inc. is a family-owned C-corporation whose stock is not traded on an exchange. The stock ownership is distributed as follows:
- **Virginia:** 6,000 shares
- **Miles:** 8,000 shares
- **John:** 2,000 shares
- **Hope:** 4,000 shares
- **Z Corporation:** 3,000 shares
- **VM Partnership:** 2,000 shares
**Total shares issued & outstanding:** 25,000 shares
**Virginia's Stock Redemption Plan:**
Virginia plans to redeem 3,000 shares of her stock. The fair market value of the stock is $500,000, and Virginia's basis for her stock is $150/share. Below are the relationships and ownership interests Virginia has with the other shareholders:
- **Miles** is Virginia’s older brother.
- **John** is Virginia’s father.
- **Hope** is Virginia’s sister.
- Virginia owns **60%** of the stock of **Z Corporation**.
- Virginia has a **30%** partnership interest in **VM Partnership**.
### Questions and Analysis
#### (a) How many shares of stock is Virginia deemed to own in Jamestown, Inc.?
**Deemed Ownership:**
- Virginia’s direct ownership: 6,000 shares
- Indirect ownership:
- Miles (brother): 8,000 shares
- John (father): 2,000 shares
- Hope (sister): 4,000 shares
- Z Corporation (60% of 3,000 shares): 1,800 shares
- VM Partnership (30% of 2,000 shares): 600 shares
**Total deemed ownership:**
\[ 6,000 + 8,000 + 2,000 + 4,000 + 1,800 + 600 = 22,400 \text{ shares} \]
#### (b) Tax Calculation for Virginia:
Assume Virginia is in the 37% tax bracket. The tax owed if the redemption of 3,000 shares occurs is calculated as follows:
- **Fair Market Value (FMV) of redeemed stock:** $500,000
- **Basis for the redeemed stock:** 3,000 shares \* $150/share = $450,000
- **Capital Gain:** $500,000 - $
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