Crane Corporation has 2,000 shares of stock outstanding. It redeems 500 shares for $370,000 when it has paid-in capital of $300,000 and E & P of $1,200,000. The redemption qualifies for sale or exchange treatment for the shareholder. Crane incurred $13,000 of accounting and legal fees in connection with the redemption transaction and $18,500 of interest expense on debt incurred to finance the redemption. What is the effect of the distribution on Crane Corporation's E & P? Also, what is the proper tax treatment of the redemption expenditures?

Answer rating: 100% (QA)

Crane Corporation would reduce its E P in the amount ... View the full answer