Wildcat Company is owned equally by Evan Stone and his sister Sara, each of whom holds 1,000 shares in the company. Sara wants to reduce her ownership in the company, and it was decided that the company will redeem 500 of her shares for $25,000 per share on December 31 of this year. Sara's tax basis in each share is $5,000. Wildcat has current E&P of $10,000,000 and at the beginning of the year accumulated E&P is $50,000,000. b. What is Sara's tax basis in the remaining 500 shares she owns in the company? Income tax basis of remaining shares

Wildcat Company is owned equally by Evan Stone and his sister Sara, each of whom holds 1,000 shares in the company. Sara wants to reduce her ownership in the company, and it was decided that the company will redeem 500 of her shares for $25,000 per share on December 31 of this year. Sara's tax basis in each share is $5,000. Wildcat has current E&P of $10,000,000 and at the beginning of the year accumulated E&P is $50,000,000. b. What is Sara's tax basis in the remaining 500 shares she owns in the company? Income tax basis of remaining shares

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Comet Company is owned equally by Pat and his sister Pam, each of whom holds 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has a total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption? a) $25,000 capital gain and a tax basis in each of her remaining shares of $100. b) $50,000 dividend and a tax basis in each of her remaining shares of $50. c) $50,000 dividend and a tax basis in each of her remaining shares of $100. d) $25,000 capital gain and a tax basis in each of her remaining shares of $500. Kay owns XYZ Corporation stock with a basis of $20,000. She exchanges this for $24,000 of ABC stock and $8,000 of ABC securities as part of a tax-free reorganization. What is Kay's realized gain?
Dave and his friend Stewart each owns 50 percent of KBS. During the year, Dave received $96,000 compensation for services he performed for KBS during the year. He performed a significant amount of work for the entity, and he was heavily involved in management decisions for the entity (he was not a passive investor in KBS). After deducting Dave's compensation, KBS reported taxable income of $38,400. How much FICA and/or self-employment tax is Dave required to pay on his compensation and his share of the KBS income if KBS is formed as a C corporation, an S corporation, or a limited liability company (taxed as a partnership) (ignore the 0.9 percent additional Medicare tax)? How much FICA tax would the entity be required to pay on the compensation paid to Dave? Note: Do not round any percentage calculations. Round other intermediate calculations and final answers to the nearest whole dollar amount. C Corporation S Corporation Limited liability company FICA Tax that Dave pays FICA Tax that…
Facts: Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. Ellie has a basis in Otter Enterprises of $80,000 at the beginning of the year. Linda has a basis in Otter Enterprises of $60,000 at the beginning of the year. Assume that Otter Enterprises has no debt. Otter Enterprises has $320.000 of gross income and $210.000 of operating expenses. In addition. Otter has a long-term capital gain of $15.000 and makes distributions to Ellie and Linda of $25,000 each. Required: Discuss the impact of this information on the taxable income of Otter. Ellie, and Linda if Otter is: A. A partnership. B. An S corporation. C. AC corporation. Include in your discussion (1) the amount and character of any income recognized by Ellie, Linda, and Otter (including Otter's taxable income and the amount of any tax paid by Otter) in each business entity form; and (2) Ellie and Linda's basis in Otter Enterprises at the end of the year in each business entity form. Show your work and…
Ramona and Hermione formed Wiley Corporation on January 2. Ramona contributed cash of $300,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: FMV Building $112,500 Land 262,500 Total $375,000 Adjusted Tax Basis $30,000 120,000 $150,000 To equalize the exchange, Wiley Corporation paid Hermione $75,000 in addition to her stock. i. Assume Hermione's adjusted tax basis in the land was $375,000. What adjusted tax basis does Wiley Corporation take in the land and building received from Hermione seperately?
Danni is a single 30 percent owner of Kolt (a business entity). In the current year, Kolt reported a $1,000,000 business loss. Answer the following questions associated with each of the following alternative scenarios: Note: Leave no answer blank. Enter zero if applicable. b. Kolt is organized as an LLC taxed as a partnership. Thirty percent of Kolt's loss is allocated to Danni. Danni works 20 hours a week on Kolt business activities (she is not considered to be a passive investor in Kolt). Danni has a $400,000 basis in her Kolt ownership interest, and she also has a $400,000 at-risk amount in her investment in Kolt. Danni does not report income or loss from any other business activity investments. How much of the $300,000 loss allocated to her from Kolt is Danni allowed to deduct this year? THE ANSWER IS NOT 250,000 OR 300,000 OR 400,000
sanju
Damarcus is a 50 percent owner of Hoop (a business entity). In the current year, Hoop reported a $100,000 business loss. Answer the following questions associated with each of the following alternative scenarios. (Leave no answer blank. Enter zero if applicable.) a. Hoop is organized as a C corporation and Damarcus works full-time as an employee for Hoop. Damarcus has a $20,000 basis in his Hoop stock. How much of Hoop’s loss is Damarcus allowed to deduct against his other income? Allowable deduction of loss
Nail Corporation made a distribution of $589, 110 to Rusty in partial liquidation of the company on December 31 of this year. Rusty, an individual, owns 100 percent of Nail Corporation. The distribution was in exchange for 50 percent of Rusty's stock in the company. At the time of the distribution, the shares had a fair market value of $219 per share. Rusty's tax basis in the shares was $ 50 per share. Nail had total E&P of $8,485,000 at the time of the distribution. a. What are the amount and character (capital gain or dividend) of any income or gain recognized by Rusty because of the partial liquidation? Capital gain/ Dividend . . . . . . . ./ per share b. Assuming Nail made no other distributions to Rusty during the year, by what amount does Nail reduce its total E&P because of the partial liquidation?
T corporation (E & P $800,000) has 1,000 shares of stock outstanding. The shares are owned as followed: James 600 shares; Stephanie (James's sister) 300 shares; Luke (James son) 100 shares. T corporation owns land (basis of 300,000, FMV of $260,000) that it purchased as an investment years ago. James had a basis of $275,000 in his shares. What are the tax consequences for both T corporation and James if the distribution is: A. A qualified stock redemption B. A liquidating distribution
Hernando is a shareholder in a S corporation. At the beginning of the year, he purchased 1500 shares of the corporation for $35000. He then received a schedule K-1 for the same year reporting his share of the ordinary business income $10000. The only other item reported on schedule k-1 was $2000 cash distribution. What is Hernando year-end adbjusted basis
This year, the shareholders in Sunflower Company can choose between receiving an additional 1,000 shares of stock or cash of $1000. Sunflower's shareholders will be taxed on the distribution if Sunflower has sufficient E&P. True Or False
Moore Corporation has 400 shares of stock outstanding that are owned equally by four unrelated shareholders. Moore redeems 100 shares from the shareholders as shown below for $600 per share. Each shareholder has a $180 per share basis for his stock. Moore Corporation's current and accumulated E&P at the end of the tax year is $150,000. what are the tax consequences of these redemptions?