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. a. What are the amount and character (capital gain or dividend) recognized by Sara as a result of the stock redemption? Capital gain
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. a. What are the amount and character (capital gain or dividend) recognized by Sara as a result of the stock redemption? Capital gain
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text: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.
a. What are the amount and character (capital gain or dividend) recognized by Sara as a result of the stock redemption?
Capital gain
Expert Solution
Step 1
A capital gain is an increase in the value of a capital asset and is realized when the asset is sold. Capital gains apply to any type of asset, including property purchased for investment and personal use. Gains can be short-term (one year or less) or long-term (more than one year) and must be claimed on income tax.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
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.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education