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ACCOUNTING

Cardinal Corporation has 1,000 shares of common stock outstanding owned as follows: Felipe, 500 shares and Rhonda (an unrelated party), 500 shares. Felipe and Rhonda each paid $100 per share for the Cardinal stock 10 years ago. Cardinal distributes land held as an investment (fair market value of $80,000, adjusted basis of $30,000) to Rhonda in redemption of 250 of her shares.a.What are the tax results to Rhonda on the redemption of her Cardinal stock?

b.What gain or loss results to Cardinal Corporation on the redemption?

c.Assume that Cardinal’s E & P is $170,000 after any required adjustment for the gain or loss on the land distribution but before any required adjustment for the stock redemption. What is the reduction in Cardinal Corporation’s E & P as a result of the redemption?


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