1. Korak, Inc.'s equity section appears as follows:

Capital stock, 1,000 shares, par $1

$ 1,000

Paid-in capital

9,000

Earnings and profits

30,000

At this time, Korak redeems 40 percent of its shares for $17,000 from an individual shareholder with a basis of $20,000 in a transaction qualifying as a complete termination.

• What is the amount and character of gain or loss recognized by the shareholder?
• The corporation?
• What does the equity section look like after the redemption?