STUDY PROBLEMS ove Assume in all problems that $ 305(b) does not apply. )scommon stock (its only c PROBLEMS class) is traded on the NYSE are more attractive if they ) is traded on the NYSE. Xhas Al stock split and mail to all shareholden EEP. Since believes its shares reach S1 10, X' declares a three-for-one stock when the shares reach SI1O 100 x centiates for double the number of shares currently held ficates. 4 currently holds a certificate for What are the bought for $9,000.4 rececives a new certificate for 200 shares. ADD T tax consequences to A and X? Ahernative ' does not care about its share prices and distribut its sharcholders pro rata to Code: per c warrants to buy one common share of x The warrant exer r currently owned. The warrant exercise price is s100. Theon sh o shares. The warrants also trade on an established market and A quickly sells the warrants receivedf 4 and B organized x 15 years ago, each contributing $10,000 receiving 100 shares of common stock. Five years ago in June,decoa one-for-one dividend payable in pure preferred stock (paying a 6 cumulative dividend on is par value, which equaled its then $100 of FMW The value of the common stock after the distribution was $400 per share that year,X' had accumulated E&P of S13,000 and current E&P of $3 the current year, X has accumulated E&P of $28,000 and current E&P of and each (2) share, In AD S2,000. What are the tax consequences of the disposition described in each situation below? (a) In December of the current year, A sells all of A's preferred stock to C for $9,000, In June of the next year, A sells all of A's common stock to D for $50,000. LESSON 7 Alternatives: ) The sale to D took place in June of the current year. Also, what if C were A's son? Same as (i) above except that A sells the preferred back to x. (ii) ADD TO ASSIGNMENT Code: $$ 1361(bXI)(D), 1368(b), 1368(c) x was an S corporation five years ago, with a $20,000 AAA in addition to the $13,000 accumulated E&P but no current E&P (b) B, who is A's son, took over as X's CEO five years ago. A gave 100 common shares of X to B four years ago. A dies on December 1 of the current year when the preferred stock is worth $9,000. No election is made under S 2032. In March of the next year, A's executor sells the preferred for $10,000. ADVANCED ASSIGNMENT (c) In December of the current year, X redeems all of A's preferred stock in exchange for $9,000. In the next year, X redeems all of B's preferred stock for $9,000; X's available E&P next year is $1,000, before reduction for distributions. In December of the current year, X redeems all of A's preferred shares and 50 of A's common shares for a total consideration of S34,000, of which $9,000 is properly allocable to the preferred and $25,000 to the common (d) Alternative: Xhad neither accumulated nor current E&P five years ago. STUDY PROBLEMS ove Assume in all problems that $ 305(b) does not apply. )scommon stock (its only c PROBLEMS class) is traded on the NYSE are more attractive if they ) is traded on the NYSE. Xhas Al stock split and mail to all shareholden EEP. Since believes its shares reach S1 10, X' declares a three-for-one stock when the shares reach SI1O 100 x centiates for double the number of shares currently held ficates. 4 currently holds a certificate for What are the bought for $9,000.4 rececives a new certificate for 200 shares. ADD T tax consequences to A and X? Ahernative ' does not care about its share prices and distribut its sharcholders pro rata to Code: per c warrants to buy one common share of x The warrant exer r currently owned. The warrant exercise price is s100. Theon sh o shares. The warrants also trade on an established market and A quickly sells the warrants receivedf 4 and B organized x 15 years ago, each contributing $10,000 receiving 100 shares of common stock. Five years ago in June,decoa one-for-one dividend payable in pure preferred stock (paying a 6 cumulative dividend on is par value, which equaled its then $100 of FMW The value of the common stock after the distribution was $400 per share that year,X' had accumulated E&P of S13,000 and current E&P of $3 the current year, X has accumulated E&P of $28,000 and current E&P of and each (2) share, In AD S2,000. What are the tax consequences of the disposition described in each situation below? (a) In December of the current year, A sells all of A's preferred stock to C for $9,000, In June of the next year, A sells all of A's common stock to D for $50,000. LESSON 7 Alternatives: ) The sale to D took place in June of the current year. Also, what if C were A's son? Same as (i) above except that A sells the preferred back to x. (ii) ADD TO ASSIGNMENT Code: $$ 1361(bXI)(D), 1368(b), 1368(c) x was an S corporation five years ago, with a $20,000 AAA in addition to the $13,000 accumulated E&P but no current E&P (b) B, who is A's son, took over as X's CEO five years ago. A gave 100 common shares of X to B four years ago. A dies on December 1 of the current year when the preferred stock is worth $9,000. No election is made under S 2032. In March of the next year, A's executor sells the preferred for $10,000. ADVANCED ASSIGNMENT (c) In December of the current year, X redeems all of A's preferred stock in exchange for $9,000. In the next year, X redeems all of B's preferred stock for $9,000; X's available E&P next year is $1,000, before reduction for distributions. In December of the current year, X redeems all of A's preferred shares and 50 of A's common shares for a total consideration of S34,000, of which $9,000 is properly allocable to the preferred and $25,000 to the common (d) Alternative: Xhad neither accumulated nor current E&P five years ago