Tivee is a media company that produces animated sitcoms.Tivee has five shareholders: Carry, Nomer, Ted, Chloe, and
Question:
Tivee is a media company that produces animated sitcoms.Tivee has five shareholders: Carry, Nomer, Ted, Chloe, and Carry's grandmother. Carry and Nomer are married, and Ted and Chloe are unrelated to the other. Each of the shareholders owns 20% of the 1,000 shares of Tivee 's outstanding common stock. The overall net value of the corporation is $5 million. The corporation decided to redeem Carry completely and distributed $1 million cash in return for all of her stock. The corporation’s current earnings and profits for the year of the redemption is $2.5 million. It has no accumulated e&p. Carry’s basis in her shares was $300,000.
Follow up Questions:
a. What if Tivee distributed property worth $1 million (with a basis to Tivee of $250,000) instead of cash to remove Carry’s stock?
b. What if Tivee redeemed only ten shares of Chloe’s stock and no stock from Carry? Chloe’s basis in the redeemed shares was $20,000.
c. . Would the results in 1 change if all five shareholders had agree to a “buy out” arrangement pursuant to which each agreed to first offer sale of the shares to the other shareholders before selling to a third party?
d. Would answers to any of the above change if, in addition to their interests in Tivee Carry and Chloe were partners in an unrelated partnership?
Accounting Principles
ISBN: 978-1119048473
7th Canadian Edition Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak