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C12-Chp-06-3A-Redemption-for-cash

# C12-Chp-06-3A-Redemption-for-cash - Tab-1 Problems 2,000...

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Tab-1. Problems 02a0f8d611ea7f51515dfe719b9dacc62aa52532.xlsx Page 1 of 5 Corp. shareholders like dividend income. Individuals like capital gains. Why? Pg. 6-3, Sec. 243 Txt Code Basic Case. Bob buys 2,000 shares of LOCAL Corporation stock Shares 2,000 Bob's cost per share is \$40 Cost/Share \$40 Bob's total cost of 200 shares of stock Total Cost \$80,000 Case 1 LOCAL Corp. makes cash distribution of \$50,000 to Bob. Bob reports: Div. Income \$50,000 5-3 301 c 2 Bob sells 1,000 shares of LOCAL to a stranger for \$50 per share Shares 1,000 Bob's selling price per share Price/share \$50 Bob's total selling price for 1,000 shares Selling Price \$50,000 Total cost of shares Bob sold (1,000 shares at cost of \$40 per share) Cost \$40,000 Gain Bob reports on sale of 1,000 shares Gain \$10,000 1001 3 LOCAL Corp. redeems 1,000 of Bob's LOCAL shares. LOCAL pays Bob \$50 per share. Number of shares redeemed Shares 1,000 Redemption price per share Price/share \$50 Total amount Bob received for 1,000 shares Total \$50,000 3a Assume Bob qualifies for "Dividend Treatment." 6-3 301 Local distributes \$50,000 (cash) to Bob. Bob reports dividend income. Div. Income \$50,000 6-3 301 a 3b Assume Bob qualifies for "Exchange Treatment." Local pays Bob \$50,000 - LOCAL buys Bob's stock. Number of shares that LOCAL purchased from Bob Shares 1,000 Bob's cost per share Cost/share \$40 Total cost of shares sold Cost \$40,000 Total selling price for 1,000 shares at \$50 per share. Selling Price \$50,000 Bob reports capital gain on sale of his stock. Cap. Gain \$10,000 302 b Name five types of redemptions that get exchange treatment. Sec. 302(b) and 303 6-5 302 b

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Tab-2. Widow sells stock 02a0f8d611ea7f51515dfe719b9dacc62aa52532.xlsx Page 2 of 5 Employee Buys Stock From Widow Charlotte Corporation Basis Value Cash \$1,000,000 \$1,000,000 Other assets \$800,000 \$1,000,000 Total Assets \$1,800,000 \$2,000,000 Debt \$0 Stock (\$1 par) \$500,000 Retained Earnings \$1,300,000 Owner Equity \$1,800,000 \$2,000,000 Jim - Assistant Manager Wants to buy the business from Widow.
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C12-Chp-06-3A-Redemption-for-cash - Tab-1 Problems 2,000...

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