Question

2. Betta Inc. has 100 shares outstanding. As of January 1, 2016 Betta had 200,000 earnings and profits from prior years. On June 30, 2016 Betta paid a dividend of 35 per share to all shareholders. Bob and his three brothers each owned 25 shares of Betta. Each invested $10,000 to start the company and made no further investment in Betta. In November 2016 Bob and his wife got divorced and he needed money to pay her settlement. To raise the cash needed bob sold 10 shares of Betta back to Betta as treasury stock. Betta gave Bob $65,000 in cash and the car he was driving, cost 62,000, fair market value, 38,000, basis $20,000. On December 31, 2016 when Betta closed its books for the year there was a profit of $10,000. Compute Bob’s treatment of the money he received and his basis in the remaining shares he owned.

Answer 1

Computation of Bob for treatment of money received and his basis of remaining Shares Invested in Betts Inc.

	Bob's initial Investment Cost	25	Shares	$        400		$  10,000
01-Jun-16	Dividend Received @$35 X 25 shares					$ 875
01-Nov-16	Cash Received from BETTA Inc on Sale of	10	Shares		$ 65,000
01-Nov-16	Value Basis of Car received from Betta Inc on sale of 10 Shares				$ 20,000
01-Nov-16	Total Value Received	10	Shares	$    8,500	$ 85,000
01-Nov-16	Less: Value of Investment cost of 10 shares			$        400	$    4,000
01-Nov-16	Profit Earned on sale of 10 shares					$  81,000
31-Dec-16	Total Cash received from Betta Inc. during the year					$ 81,875
31-Dec-16	Balance investment Cost of Shares Bob Owned	15	Shares	$        400		$ 6,000

                                                                       

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