Question

X Corp. has 100 shares of its stock outstanding as follows: Alicia 30 shs.; Barbara 30 shs.; and Charles 40 shs. X Corp.’s E & P = $200,000. X Corp. redeems 20 shares of Charles’s stock for $30,000.

a. |
The distribution to Charles is a qualifying redemption because it completely terminates his interest |
c. |
The distribution is essentially equivalent to a dividend |

b. |
The distribution is a qualifying redemption because it is substantially disproportionate |
d. |
None of the above choices |

Answer #1

X Corp. has 100 shares of its stock outstanding as follows: Alicia 30 shs.; Barbara 30 shs.; and Charles 40 shs. X Corp.’s E & P = $200,000. X Corp. redeems 20 shares of Charles’s stock for $30,000.

**Answer :**

b. |
The distribution is a qualifying redemption because it is substantially disproportionate |

the redemption is substantially diproprtionate

if the sharehoder interet in the outstanding common stock in the redeeming comapnay after redmepion is less than the 80% of interest before redemption

in the given case the post redemption sharehoder interest is less than the 80 % of before redemption interest

80%*40=32 %

post redemption interest is 20/80*100= 25 % which is less than the 32 %

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 1 minute ago

asked 1 minute ago

asked 4 minutes ago

asked 4 minutes ago

asked 6 minutes ago

asked 7 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 11 minutes ago

asked 12 minutes ago

asked 14 minutes ago