Financial Case
Question 42
Harry’s basis of the land is $300,000. And Harry has a dividend of $180,000(300,000-120,000) because of the liability. The dividend should be taxable for Harry. After dividend distribution, Lime Corporation would have a $230,000 on E&P, since Harry needs to assume the liability of the land. (350,000- 120,000).
Question 47
Jacob’s basis of the stock was $24,000. Since he received a stock dividend of additional 2,000 shares, Jacob held 12,000 (10,000+2,000) shares in total. Therefore, Jacob’s basis of each stock was $2(24,000/12,000). He sold the additional 2,000 shares for $18,000, and his gain was $14,000($18,000-2*2,000). Because the dividend shares that Jacob received are non-taxable dividend, thus, Jacob’s gain of $14,000 …show more content…
Lori has a dividend income of $6,000 and Swan Corporation’s profit would be decreased by $6,000. Since Lori used $6,000 to purchase the 500 shares of stock from Robert, Lori’s basis of the newly stocks would be $6,000. Robert would realize a capital gain of $515,000 (600,000-85,000) from selling all his 500 shares. Purchasing and selling stocks between Robert and Lori would not affect Swan Corporation.
b. Robert would realize a capital gain from redeeming his shares to Swan Corporation. The gain would be $515,000(600,000-85,000), and this would make Lori the solo shareholder of the company. The redemption was considered as complete termination redemption. Swan Corporation has a decline on the E&P since Robert redeemed all his shares. The E&P would decreased by half million U.S. dollar.
Question 56
Crane Corporation’s E&P would be decreased because of the stock redemption. Before the stock redemption, Crane had 2,000 shares outstanding with $1,200,000 E&P. Therefore, each share of stock accounts for $600(1,200,000/2,000). Crane redeemed 500 shares, which accounted for $300,000. Thus, after redemption, the E&P would be decreased by $300,000. For the expenses during redemption, the $13,000 accounting and legal fees was not qualified to be deducted, but the $18,500 interest expense was
Harry’s basis of the land is $300,000. And Harry has a dividend of $180,000(300,000-120,000) because of the liability. The dividend should be taxable for Harry. After dividend distribution, Lime Corporation would have a $230,000 on E&P, since Harry needs to assume the liability of the land. (350,000- 120,000).
Question 47
Jacob’s basis of the stock was $24,000. Since he received a stock dividend of additional 2,000 shares, Jacob held 12,000 (10,000+2,000) shares in total. Therefore, Jacob’s basis of each stock was $2(24,000/12,000). He sold the additional 2,000 shares for $18,000, and his gain was $14,000($18,000-2*2,000). Because the dividend shares that Jacob received are non-taxable dividend, thus, Jacob’s gain of $14,000 …show more content…
Lori has a dividend income of $6,000 and Swan Corporation’s profit would be decreased by $6,000. Since Lori used $6,000 to purchase the 500 shares of stock from Robert, Lori’s basis of the newly stocks would be $6,000. Robert would realize a capital gain of $515,000 (600,000-85,000) from selling all his 500 shares. Purchasing and selling stocks between Robert and Lori would not affect Swan Corporation.
b. Robert would realize a capital gain from redeeming his shares to Swan Corporation. The gain would be $515,000(600,000-85,000), and this would make Lori the solo shareholder of the company. The redemption was considered as complete termination redemption. Swan Corporation has a decline on the E&P since Robert redeemed all his shares. The E&P would decreased by half million U.S. dollar.
Question 56
Crane Corporation’s E&P would be decreased because of the stock redemption. Before the stock redemption, Crane had 2,000 shares outstanding with $1,200,000 E&P. Therefore, each share of stock accounts for $600(1,200,000/2,000). Crane redeemed 500 shares, which accounted for $300,000. Thus, after redemption, the E&P would be decreased by $300,000. For the expenses during redemption, the $13,000 accounting and legal fees was not qualified to be deducted, but the $18,500 interest expense was