Flintstone Company is owned equally by Fred Stone and his sister Wilma, each of whom holds 3,200 shares in the company. Wilma wants to reduce her ownership in the company, and it was decided that the company will redeem 730 of her shares for $33,200 per share on December 31 of this year. Wilma’s tax basis in each share is $6,000. Flintstone has current E&P of $10,640,000 and accumulated E&P at the beginning of the year is $50,160,000. a. What are the amount and character (capital gain or dividend) recognized by Wilma as a result of the stock redemption, assuming only the “substantially disproportionate with respect to the shareholder” test is applied? b. What is Wilma’s tax basis in the remaining 2,470 shares she owns in the company? c. Assuming the company did not make any dividend distributions this year, by what amount does Flintstone reduce its E&P as a result of the redemption?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Flintstone Company is owned equally by Fred Stone and his sister Wilma, each of whom holds 3,200 shares in the company. Wilma wants to reduce her ownership in the company, and it was decided that the company will redeem 730 of her shares for $33,200 per share on December 31 of this year. Wilma’s tax basis in each share is $6,000. Flintstone has current E&P of $10,640,000 and accumulated E&P at the beginning of the year is $50,160,000.

a. What are the amount and character (capital gain or dividend) recognized by Wilma as a result of the stock redemption, assuming only the “substantially disproportionate with respect to the shareholder” test is applied?

b. What is Wilma’s tax basis in the remaining 2,470 shares she owns in the company?

c. Assuming the company did not make any dividend distributions this year, by what amount does Flintstone reduce its E&P as a result of the redemption?

 

 

 
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps

Blurred answer
Knowledge Booster
Tax loss carryovers
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education