Problem 6-47 (LO. 1, 2) Robert and Lori (Robert's sister) own all of the stock in Swan Corporation (E & P of $1,000,000). Each owns 500 shares and has a basis of $85,000 in the shares. Robert wants to sell his stock for $600,000, the fair market value, but he will continue to be employed as an officer of Swan Corporation after the sale. Lori would like to purchase Robert's shares, pecoming the sole shareholder in Swan, but Lori is short of funds. What are the tax consequences to Robert, Lori, and Swan Corporation under the following circumstances? a. Swan Corporation distributes cash of $600,000 to Lori, and she uses the cash to purchase Robert's shares. Lori would have dividend income of $ 600,000 and a basis of $ 600,000 in the newly acquired 500 shares and become the sole shareholder of Swan. Robert would have a capital gain of $ 515,000 on the sale. As a result of the stock transaction, Swan recognizes no gain or loss and its E & P by $ b. Swan Corporation redeems all of Robert's shares for $600,000. The transaction would result in a capital gain of $ 515,000 to Robert. Swan would reduce its E & P by $ 500,000
Problem 6-47 (LO. 1, 2) Robert and Lori (Robert's sister) own all of the stock in Swan Corporation (E & P of $1,000,000). Each owns 500 shares and has a basis of $85,000 in the shares. Robert wants to sell his stock for $600,000, the fair market value, but he will continue to be employed as an officer of Swan Corporation after the sale. Lori would like to purchase Robert's shares, pecoming the sole shareholder in Swan, but Lori is short of funds. What are the tax consequences to Robert, Lori, and Swan Corporation under the following circumstances? a. Swan Corporation distributes cash of $600,000 to Lori, and she uses the cash to purchase Robert's shares. Lori would have dividend income of $ 600,000 and a basis of $ 600,000 in the newly acquired 500 shares and become the sole shareholder of Swan. Robert would have a capital gain of $ 515,000 on the sale. As a result of the stock transaction, Swan recognizes no gain or loss and its E & P by $ b. Swan Corporation redeems all of Robert's shares for $600,000. The transaction would result in a capital gain of $ 515,000 to Robert. Swan would reduce its E & P by $ 500,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 6-47 (LO. 1, 2)
Robert and Lori (Robert's sister) own all of the stock in Swan Corporation (E & P of $1,000,000). Each owns 500 shares
and has a basis of $85,000 in the shares. Robert wants to sell his stock for $600,000, the fair market value, but he will
continue to be employed as an officer of Swan Corporation after the sale. Lori would like to purchase Robert's shares,
becoming the sole shareholder in Swan, but Lori is short of funds. What are the tax consequences to Robert, Lori, and
Swan Corporation under the following circumstances?
a. Swan Corporation distributes cash of $600,000 to Lori, and she uses the cash to purchase Robert's shares.
Lori would have dividend income
of $
600,000 and a basis of $
600,000 in the newly acquired
500 shares and become the sole shareholder of Swan. Robert would have a capital gain
of $
515,000 оn
the sale. As a result of the stock transaction, Swan recognizes no gain or loss
and
its E &
P by $
b. Swan Corporation redeems all of Robert's shares for $600,000.
The transaction would result in a capital gain
of $
515,000 to Robert. Swan would reduce
its E & P
by $
500,000
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