Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie ow
ID: 2600349 • Letter: B
Question
Bonnie and Clyde are the only two shareholders in Getaway Corporation. Bonnie owns 60 shares with a basis of $4,500, and Clyde owns the remaining 40 shares with a basis of $13,500. At year-end, Getaway is considering different alternatives for redeeming some shares of stock. (Round your answers to the nearest whole number. Leave no answer blank. Enter zero if applicable.)
Required:
Getaway redeems 13 of Bonnie’s shares for $3,500. Getaway has $23,000 of E&P at year-end and Bonnie is unrelated to Clyde
Getaway redeems 38 of Bonnie’s shares for $7,000. Getaway has $23,000 of E&P at year-end and Bonnie is unrelated to Clyde. (Do not round intermediate calculations.)
Getaway redeems 5 of Clyde’s shares for $4,000. Getaway has $23,000 of E&P at year-end and Clyde is unrelated to Bonnie.
Explanation / Answer
Alternative 1:
Bonnie owns 47% shares after redemption i.e. 60-13=47
It is a sale as money is being paid to Bonnie.
Gain
= $3500- Basis of 13 shares of Bonnie
=$3500- ($4500/60)*13
=$2525
Alternative 2:
Bonnie owns 22% shares after redemption i.e. 60-38=22
It is a sale as money is being paid to Bonnie.
Gain
= $7000- Basis of 38 shares of Bonnie
=$7000- ($4500/60)*38
=$4150
Alternative 3:
Clyde owns 35% shares after redemption i.e. 40-5=35
It is a sale as money is being paid to Clyde.
Gain
= $4000- Basis of 5 shares of Clyde
=$4000- ($13500/40)*5
=$2312.5