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stiv31 [10]
2 years ago
14

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Comet redeems 50 of Pam's

shares on December 31, 20X3, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes. Comet has total E&P of $160,000 on December 31, 20X3. What are the tax consequences to Comet because of the stock redemption?
A. No reduction in E&P because of the exchange.
B. A reduction of $50,000 in E&P because of the exchange.
C. A reduction of $40,000 in E&P because of the exchange.
D. A reduction of $80,000 in E&P because of the exchange.
Business
1 answer:
saw5 [17]2 years ago
8 0

Answer:

Correct option is C

Explanation:

Total E&P = $ 160000

Total voting Right Sold = 50/ (100+100) = 25%

Reduction of E& P due to exchange = Total E&P*Total voting Right Sold

Reduction of E& P due to exchange = 160000*25%

Reduction of E& P due to exchange = 40000

Reduction of E& P Lower of Total E&P*Total voting Right Sold or Amount realised

Reduction of E& P Lower of 40000 or (50*1000)

Reduction of E& P Lower of 40000 or 50000

Answer

C. A reduction of $40,000 in E&P because of the exchange.

 

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Thornton Industries began construction of a warehouse on July 1, 2016. The project was completed on March 31, 2017. No new loans
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Answer:

THORNTON INDUSTRIES

AMOUNT OF INTEREST TO BE CAPITALIZED FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2017

2016

July 1 - Dec 31    $400,000 *4.8%*6/12 =  $9,600

Sep 30 - Dec 31  $600,000*4.8%*3/12 =   $7,200

Nov 30 - Dec 31  $600,000*4.8%*1/12 =     <u>$2,400</u>

Total Interest for 2016                              <u>  $19,200</u>

2017

Jan 1 - Dec 31   $1,600,000*4.8% =             $76,800

Jan 30 - Dec 31   $540,000*4.8%*11/12 =     <u> 23,760</u>

Total interest for the year 2017                 <u>  $100,560  </u>

weightred average cost of capital =

 <u>   $2,000,000*8%   +     $8,000,000*4%</u>

      $2,000,000 + $8,000,000

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Interest to be capitalized on construction expenditure will be interest on the amount borrowed to finance such construction. the interest will be from commencement of the construction to the cessation period

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3 years ago
3. Which of the following best defines inflation? a. The rapid increase in the price of a specific good, such as gasoline b. A g
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The best answer is D.

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A. true.
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