Find out the minimum number of shares, Corporate Finance

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X is owned entirely by two individuals, A and B (who are unrelated unless otherwise stated).  A owns 60 shares of X common stock (purchased in one transaction for $600).  B owns 40 shares of X common stock (with a basis of $30 per share).  The stock's FMV is $20 per share.  X's E&P is $500.  X uses the accrual method of accounting.  What are the results to the parties from the alternative transactions shown below (i.e., the amount and character of shareholder income or loss and the E&P impact)?

(a)   A sells 10 X shares to B for $200 (A's basis in his X shares is ratable).

(b)   A sells 30 shares back to X for $600.

(c)   A sells 20 shares back to X for $400.

(d)  What would result to B if X redeems 10 of B's shares for $200?  What is the minimum number of shares that B must have redeemed to ensure sale or exchange treatment?  Explain.

 

 

 


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