Bedrock Incorporated is owned equally by Barney Rubble and his wife Betty, each of whom holds 1,000 shares in the company. Betty 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. Betty's tax basis in each share is $5,000. Bedrock has current E&P of $10,000,000 and accumulated E&P of $50,000,000.
Bedrock Incorporated is owned equally by Barney Rubble and his wife Betty, each of whom holds 1,000 shares in the company. Betty 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. Betty's tax basis in each share is $5,000. Bedrock has current E&P of $10,000,000 and accumulated E&P of $50,000,000.
Chapter22: S Corporations
Section: Chapter Questions
Problem 30P
Related questions
Question
![!
Required information
[The following information applies to the questions displayed below.]
Bedrock Incorporated is owned equally by Barney Rubble and his wife Betty, each of whom holds 1,000 shares in the
company. Betty 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. Betty's tax basis in each share is $5,000. Bedrock has
current E&P of $10,000,000 and accumulated E&P of $50,000,000.
a. What are the amount and character (capital gain or dividend) recognized by Betty as a result of the stock redemption, assuming only
the “substantially disproportionate with respect to the shareholder” test is applied?
Dividend](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87f377c8-556b-40c3-ad73-583aac17d9d0%2F70bec173-4fb6-4c74-97e7-a85544e76ec7%2Foo4rk2d_processed.png&w=3840&q=75)
Transcribed Image Text:!
Required information
[The following information applies to the questions displayed below.]
Bedrock Incorporated is owned equally by Barney Rubble and his wife Betty, each of whom holds 1,000 shares in the
company. Betty 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. Betty's tax basis in each share is $5,000. Bedrock has
current E&P of $10,000,000 and accumulated E&P of $50,000,000.
a. What are the amount and character (capital gain or dividend) recognized by Betty as a result of the stock redemption, assuming only
the “substantially disproportionate with respect to the shareholder” test is applied?
Dividend
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
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