ABC Inc. has 1,000 shares of stock outstanding owned as follows: Shareholder Shares Owned Adjusted Basis K
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Question:
ABC Inc. has 1,000 shares of stock outstanding owned as follows:
| Shareholder | Shares Owned | Adjusted Basis |
| K | 100 | $10,000 |
| S | 100 | $10,000 |
| M | 200 | $20,000 |
| U | 600 | $60,000 |
All shareholders paid $100 per share for their stock. ABC Inc. has substantial earnings and profits. All shareholders are unrelated.
A) ABC Inc. redeemed 400 shares of U’s stock for $400,000. What is the effect of the redemption on U?
B) Same as above except ABC Inc. redeemed 200 shares of U's stock for $200,000. What is the effect of the redemption on U?
C) Which of the redemption provisions is being used here?
D) What is the backup provision if the redemption under the provision cited in Part C fails?
Expert Answer:
ANSWER A The valuation of preference shares is a very straightforward exercise Usually preference shares pay a constant dividend This dividend is the percentage of the face value of the share For inst... View the full answer
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