1. Ch. 18 Stock Redemption: Bean Company is owned equally by Scott Bayley and Sara Mason. Each hold 800 shares in the company. Scott wants to reduce his ownership in the company, and as a result, the company will redeem 400 of his shares for $3,500 per share on December 31. Scotts tax basis in each share is $2,000. Bean has current E&P of $650,000 and accumulated E&P at the beginning of the year was $4,500,000.
2. What are the amount and character (capital gain or dividend) recognized by Scott as a result of the stock redemption?
3. Assuming the company did not make any dividend distributions this year, by what amount does Bean reduce its E&P as a result of the redemption?
4. How would the answers to a. and b. change if only 200 shares of Scotts stock were redeemed?