Question

Viking Corporation is owned equally by Sven and his wife Olga, each of whom hold 160 shares in the company. Viking redeemed 80 shares of Sven's stock for $1,900 per share on December 31, 20X3. Viking has total E&P of $580,000. What are the tax consequences to Viking because of the stock redemption?

Answer 1

A reduction of $152,000 in E&P because of the exchange

Step-by-step explanation:

Solution

Recall that:

Sven and Olga hold shares of =160

Viking redeemed 80 shares of Sven's stock for the amount = $1,900

Total E&P = $580,000

Now

The redemption will be treated as a dividend so, because Viking decreases its E&P by the amount issued.