Question

Caramel Corporation has 5,000 shares stock outstanding. In a qualifying stock redemption, Caramel distributes $145,000 in exhange for 1,000 of its shares. At the time of the redemption , Caramel has paid-in-capital of $800,000 and E&P of $300,000.The results of this redemption is a $___________ charge to E&P and a $____________ reducation of Caramel's paid-in-capital account.

Answer 1

In other words,this redemption transaction results in $60000 charge to e&p and $85000 reduction of Caramel's paid capital account

Step-by-step explanation:

E&P in relation to redemption is =total e&p/total shares*shares redeemed

E&P in relation to redemption is =$300000/5000shares*1000shares

E&P in relation to redemption is =$60000

The reduction in Caramel's paid-in-capital is $85000 ($145000-$60000)