What Are the Consequences of a Stock Redemption to the Distributing

question 90

Multiple Choice

What are the consequences of a stock redemption to the distributing corporation?

• A)The corporation recognizes a gain or loss as if it had sold the distributed property for its FMV immediately before the redemption.
• B)If the redemption is treated as a dividend, E&P is reduced in the same manner as for a regular dividend.
• C)If the redemption is treated as a sale, only accumulated earnings and profits is reduced.
• D)All of the above are correct.

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Definitions:

Accounts Receivable

Funds that customers owe to a company for products or services received but not yet compensated for.

Accounts Payable

Money owed by a company to its creditors for goods and services received but not yet paid for.

Operating Cycle

The period of time it takes for a company to purchase inventory, sell products, and collect cash from customers, indicating the efficiency of a business's operations.

Inventory

Inventory comprises all the goods and materials held by a company for the purpose of resale or incorporation into their product.