Comet Corporation Is Owned Equally by Patrick and His Sister

question 75

Multiple Choice

Comet Corporation is owned equally by Patrick and his sister Pam, each of whom hold 100 shares in the company.Comet redeems 50 of Pam's shares on December 31, year 1, for $1,000 per share in a transaction that Pam treats as an exchange for tax purposes.Comet has total E&P of $250,000 on December 31, year 1.What are the tax consequences to Comet as a result of the stock redemption?

• A)No reduction in E&P as a result of the exchange.
• B)A reduction of $50,000 in E&P as a result of the exchange.
• C)A reduction of $62,500 in E&P as a result of the exchange.
• D)A reduction of $125,000 in E&P as a result of the exchange.

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Definitions:

Later-Born Children

Siblings born after the first child, who may experience different parental treatment, resources, and expectations compared to their older siblings.

Older Siblings

The eldest children in a family who may have responsibilities or influence over their younger brothers or sisters.

Younger Siblings

Family members who are born after the first child in a family, often sharing a close familial bond with older siblings.

High Self-Esteem

A positive evaluation of oneself, reflecting a person's overall subjective emotional evaluation of their own worth.