Clarence Corporation has one hundred (100) shares of stock outstanding which are owned by Shirley and...

Clarence Corporation has one hundred (100) shares of stock outstanding which are owned by Shirley and Deidra who are unrelated. Shirley owns forty (40) shares of the stock and Deidra owns sixty (60) shares of the stock. Clarence Corporation redeems twelve (12) of Shirley’s shares of stock for $800 per share. Shirley paid $200 per share for her stock three (3) years ago. Assuming Clarence Corporation has significant Earning And Profit (E&P), which of the following is correct regarding the Stock Redemption?

Shirley has a Long-Term Capital Gain of $2,400
Shirley has Dividend Income o $7,200
Shirley has a Long-Term Capital Gain of $7,200
Shirley has a Long-Term Capital Gain of $4,800

Expert Solution

Shirley has Long -Term Capital Gain of $7200/-

As shirley has paid $200 per share, now she is receiving $800 per share.

So Profit is $(800-200) = $600

Total Number of Share Redemption is 12 share

Therefore, 12 share * $600 = $7200/- Long term Profit.

ekkarill92 answered 2 years ago

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Clarence Corporation has one hundred (100) shares of stock outstanding which are owned by Shirley and...

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