Magenta Corporation has 1,000 shares of stock outstanding. Julie owns 400 of these shares, and unrelated individuals own the remaining 600 shares. Magenta redeems 100 of Julie's shares for $200,000. In the year of the redemption, Magenta has $230,000 of paid-in capital and $330,000 of E&P.Requirementsa. How does the redemption affect Magenta's E&P balance if the redemption qualifies for sale treatment?b. How does the redemption affect Magenta's E&P balance if the redemption does not qualify for sale treatment?Requirements a and b. How does the redemption affect Magenta's E&P balance if the redemption qualifies for sale treatment and if the redemption does not qualify for sale treatement? (If an input field is not used, leave the input field empty. Do not select a label or enter a zero.)RemainingRedemption qualifies for sale treatmentRedemption does not qualify for sale treatmentEffect onE&PBy thisamountamount (if Treatment of remainingapplicable)amount

Step 1: Understanding Earnings and Profits (E&P)E&P is a tax concept used to determine…

Answered: Magenta Corporation has 1,000 shares 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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For the last two years, Margaret Lane has Invested in the shares of Garod Inc. Details of her purchases and sales of these shares are as follows: January 2020 Purchase July 2020 Purchase November 2020 Sale Shares Purchased (Sold) 300 200 (250) 400 (150) Per Share Value $4.75 5.25 5.40 5.50 4.80 July 2021 Purchase December 2021 Sale Determine Ms. Lane's taxable capital gains and allowable capital losses for 2020 and 2021.
DeMilo, Inc., owns 100 percent of the 43,000 outstanding shares of Ricardo, Inc. DeMilo currently carries the Investment in Ricardo account at $346,400 using the equity method. Ricardo issues 7,000 new shares to the public for $11.75 per share. How does this transaction affect the Investment in Ricardo account that appears on DeMilo’s financial records?
Chi has the following transactions in Smoke Corp. and Mirrors Corp. shares: Smoke Mirror May 1, 2018 Purchase @ $25.00 100 @ $22.50 100 December 20, 2018 Sale 100 @ $28.00 100 @ $24.00 January 3, 2019 Purchase N/A 100 @ $23.20 June 1, 2019 Sale N/A 100 @ $26.00 Chi's taxable capital gains for 2018 and 2019 are: $275 for 2018, $140 for 2019 $225 for 2018, $90 for 2019 $275 for 2018, $90 for 2019 $225 for 2018, $140 for 2019
On January 2, 2020, Hanz Corporation bought 30% of the outstanding ordinary shares of Eve Corporation for P1,560,000 cash. Hanz accounts for this investment by the equity method. At the date of acquisition of the stock, Eve's net assets had a book and fair value of P5,200,000. Eve's net income for the year ended December 31, 2020 was P1,400,000. During 2020, Eve declared and paid cash dividends of P200,000. On December 31, 2020, how much should Hanz carry its investment in Eve?
V Corp. had 1,000 shares of stock outstanding. The shares are owned by the following individuals: Anne owns 400 shares; basis of $100 per share Mother (Anne’s mother) owns 200 shares Brother (Anne’s brother) owns 400 shares V redeem 300 shares owned by Anne in exchange for land (FMV = $36,000; V Corp.’s basis = $10,000) in a qualifying redemption. What is V Corp.’s gain or loss recognized on the distribution of the land as part of a qualifying redemption? Enter gain as a positive number or loss as a negative number.
T, a 40% owner, has a basis in a S Corporation's stock of $12,000 and in a note receivable from the S Corporation of $10,000. The S Corporation has a net operating loss of $40,000 in 2020 and a gain of $30,000 in 2021. Compute the basis of the stock and the note and the amount of the ordinary loss and/or income that flows through to T in 2019 and 2020. 11. Stock Note Basis before loss Loss Total 2019 Gain Total 2020
On March 1, 2019, Carol Company bought the common shares of two companies with a 20% ownership share in each as follows: Company Name Cost company Jane 30000 company Peter 50000 Total 80000 On December 1, Company C received a dividend of $ 18,000 from its investment in the common stock of Company B, and Company A did not distribute a dividend. As at December 31, 2019, the fair value of the available-for-sale equity securities portfolio was as follows: Company Name Cost company Jane 24000 company Peter 60000 Total 84000 On January 1, 2020, Carol Company bought 20,000 shares of Dalia Company at a price of $ 1 per share and paid $ 4,000 brokerage and VAT on the brokerage value of 5%. On June 10, 2020, Company Peter sold all of its investment to Company Jane for $ 40,000. As at December 31, 2020, the fair value of the available-for-sale equity securities portfolio was as follows: Company Name Cost company Peter…
Cheyenne Corporation purchased for $327,000 a 25% interest in Murphy, Inc. This investment enables Cheyenne to exert significant influence over Murphy. During the year, Murphy earned net income of $185,000 and paid dividends of $62,000. Prepare Cheyenne's journal entries related to this investment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit (To record the purchase.) (To record the net income.) (To record the dividend.) L
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During year 1, Jenny Company engaged in the following transactions. How much would be disclosed as related-party transactions in Jenny's year 1 financial statements? * Salary expense to key employees who are also principal owners P100,000 Sales to affiliated enterprises P250,000 Your answer Pat Company reported the following information on December 31, 2020. Determine the legal capital: Preference Share, P100 par Share Premium - Preference Ordinary Share, P15 par Share Premium -Ordinary Subscribed Ordinary Share Retained Earnings Notes Payable Subscription receivable-Ordinary P230,000 80,500 525,000 275,000 5,000 190.000 400,000 40,000
Pearl Inc. owns shares of Martinez Corporation stock. At December 31, 2020, the securities were carried in Pearl’s accounting records at their cost of $821,000, which equals their fair value. On September 21, 2021, when the fair value of the securities was $1,333,000, Pearl declared a property dividend whereby the Martinez securities are to be distributed on October 23, 2021, to stockholders of record on October 8, 2021.Prepare all journal entries necessary on those three dates. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Indigo Corporation owns shares of Raccoon Company that are classified as part of Indigo's trading portfolio and accounted for using the fair value through net income model. At December 31, 2021, the securities were carried in Indigo's accounting records at their cost of $418,000, which equaled their fair value. On November 1, 2022, when the securities fair value was $442,000, Indigo declared property dividend that will result in Raccoon’s securities being distributed on December 15, 2022 to the shareholders of record on December 1, 2022.Prepare the journal entries for all three dates. Date Account Titles and Explanation Debit Credit Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022 (To record fair value adjustment) (To record declaration of property dividend) Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022 Nov. 1, 2022Dec. 1, 2022Dec. 15, 2022

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