Lopez Corporation (E & P of $1 million) has 2,000 shares of common stock outstanding owned...

Lopez Corporation (E & P of $1 million) has 2,000 shares of common stock outstanding owned by unrelated parties as follows: Kaylee, 1,000 shares, and Damek, 1,000 shares. Both Kaylee and Damek paid $150 per share for the Lopez stock 12 years ago. In May of the current year, Lopez distributes land held as an investment (basis of $180,000, fair market value of $390,000) to Kaylee in redemption of 350 of her shares. a. What are the tax results to Kaylee on the redemption of her Lopez stock? b. What are the tax results to Lopez Corporation on the distribution of the land? ANSWER:

Expert Solution


In The Hand of Kaylee
Particulars	$
Amount realized	390,000.00
Less: Stock aquisiion cost (350 shares x $150)	52,500.00
Long-Term Capital Gain	337,500.00

Notes:
1. Kaylee will have a basis of $390,000 in the Land
2. Under § 302(b)(2), this distribution to Kaylee fall under disproportionate redemption

In The Hand of Lopez Corporation
Particulars	$
Amount realized	390,000.00
Less: Basis	180,000.00
Capital Gain	210,000.00

Notes:
1. In case of non-liquidating distributions, gains have to be recognized.
2. Since E&P is $1 million and percentage of redumbtion is 17.5% (350 Shares/2000 Shares), E&P is reduced by $175,000. (That is, $1,000,000 x 17.5%)

ekkarill92 answered 1 year ago

6. Moon Corporation (E&P of $700,000) has 4,000 shares of common stock outstanding. The shares are...

6. Moon Corporation (E&P of $700,000) has 4,000 shares of common stock outstanding. The shares are owned as follows: Andy 2,000 shares Darlene (Andy’s daughter) 1,500 shares Wendy (Andy’s aunt) 500 shares In the current year, Moon redeems all of Andy’s shares. Determine whether the redemption can qualify for sale or exchange treatment under the complete termination of a shareholder’s interest rules in each of the following independent circumstances. Assume that in a. – d Andy completes and submits the...

ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock,...

ABC Corporation has 1/2 million shares of common stock outstanding, 1 million shares of preferred stock, and 20,000 4.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 21 years. Currently the bonds are selling at 104% of their face values. The market risk premium is 10%. The risk-free rate is 2.5%. The common stock sells for $75 per share. The preferred stock sells for...

Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock,...

Anderson Corporation has 1 million shares of common stock outstanding, 1/2 million shares of preferred stock, and 20,000 3.5% semiannual bonds outstanding. The common stock has a beta of 1.2. The corporate bond has a par value of $1,000 each and matures in 14 years. Currently the bonds are selling at 94% of their face values. The market risk premium is 9%. The risk-free rate is 3%. The common stock sells for $40 per share. The preferred stock sells for...

Coleman Corporation (E&P of $720,000) has 3,000 shares of common stock outstanding. Fred owns 1,500 shares...

Coleman Corporation (E&P of $720,000) has 3,000 shares of common stock outstanding. Fred owns 1,500 shares and his wife, Angelia, owns 1,500 shares. Fred and Angelia each have a basis of $90,000 in their Coleman Corporation stock. In the current year, Coleman Corporation redeems 1,000 shares from Fred for $250,000. With respect to the distribution in redemption of Fred's stock in Coleman Corporation: Group of answer choices Fred has dividend income of $250,000. Fred has a capital gain of $190,000...

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding....

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $1.00 par value. The preffered stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31, 2015, the company declares dividends of $0.25 per share for common. Provide the journal entry for the declaration of dividends.

Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that...

Bluefield Corporation has 6 million shares of common stock outstanding, 600,000 shares of preferred stock that pays an annual dividend of $8, and 200,000 bonds with a 10 percent coupon (semiannual interest) and 20 years to maturity. At present, the common stock is selling for $50 per share, the bonds are selling for $950.62 per $1,000 of face value, and the preferred stock is selling at $74 per share. The estimated required rate of return on the market is 13...

Headland Corporation has 10.60 million shares of common stock issued and outstanding. On June 1, the...

Headland Corporation has 10.60 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 73 cents per share cash dividend to stockholders of record as of June 14, payable June 30. Prepare the journal entries for each of the dates above assuming the dividend represents a distribution of earnings. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the...

Novak Corporation has 11.80 million shares of common stock issued and outstanding. On June 1, the...

Novak Corporation has 11.80 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 82 cents per share cash dividend to stockholders of record as of June 14, payable June 30. 1. Prepare the journal entries for each of the dates above assuming the dividend represents a distribution of earnings. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for...

Part 1 Ellay steel Corporation has 1.9 million shares of common stock outstanding, 50,000 shares of...

Part 1 Ellay steel Corporation has 1.9 million shares of common stock outstanding, 50,000 shares of preferred stock outstanding, and 95,500 bonds outstanding, par value $1,000 each. The common share currently sells for $40 per share and has a beta of 1.5, the preferred stock currently sells for $190 per share with a preferred dividend to be paid forever of $9.50, and the bonds sell for 110 percent of par. The expected market risk premium is 6%, the interest rate...

Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock...

Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 200 thousand bonds. The common shares are selling for $25 per share, the preferred share are selling for $10 per share, and the bonds are selling for 95 percent of their $1,000 par. (See P10-3 for formula to calculate weights). A. What would be the weight used for equity in the computation of FarCry’s WACC? B. What weight should you use for...

Question