Four unrelated shareholders own Benton Corporation's 400 shares of outstanding stock. As indicated below, Benton redeems a total of 100 shares for $500 per share from three of its shareholders. Each shareholder has a $230 per share basis in his or her stock. Benton's current and accumulated earnings and profits (E&P) at the end of the tax vear is $150.000.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Four unrelated shareholders own Benton Corporation's 400 shares of outstanding stock. As indicated below, Benton redeems a total of 100 shares for $500 per
share from three of its shareholders. Each shareholder has a $230 per share basis in his or her stock. Benton's current and accumulated earnings and profits (E&P)
at the end of the tax year is $150,000.
Requirement a. What are the tax consequences (e.g., basis of remaining shares and amount and character of recognized income, gain, or loss) of the redemptions to
Ethel, Fran, and Georgia?
Ethel
Fran
Georgia
Amount of income,
gain, or loss
Ethel
Fran
Georgia
Character of
income, gain, or
loss
capital gain
Requirement b. How would your answer to Part a change if Ethel were Georgia's mother?
Character of
income, gain, or
loss
Amount of income,
gain, or loss
Basis of remaining
shares
Basis of remaining
shares
Shareholder Data
Shareholder
Ethel
Fran
Georgia
Henry
Total
Shares Held Before the
Redemption
200
100
50
50
400
Shares
Redeemed
40
30
30
0
100
X
Transcribed Image Text:Four unrelated shareholders own Benton Corporation's 400 shares of outstanding stock. As indicated below, Benton redeems a total of 100 shares for $500 per share from three of its shareholders. Each shareholder has a $230 per share basis in his or her stock. Benton's current and accumulated earnings and profits (E&P) at the end of the tax year is $150,000. Requirement a. What are the tax consequences (e.g., basis of remaining shares and amount and character of recognized income, gain, or loss) of the redemptions to Ethel, Fran, and Georgia? Ethel Fran Georgia Amount of income, gain, or loss Ethel Fran Georgia Character of income, gain, or loss capital gain Requirement b. How would your answer to Part a change if Ethel were Georgia's mother? Character of income, gain, or loss Amount of income, gain, or loss Basis of remaining shares Basis of remaining shares Shareholder Data Shareholder Ethel Fran Georgia Henry Total Shares Held Before the Redemption 200 100 50 50 400 Shares Redeemed 40 30 30 0 100 X
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