TH Inc.has been in the storage business for 10 years.Prior to a stock redemption, TH has 100 shares of stock outstanding.The stock owned and the number of shares redeemed from each shareholder are as follows: $\begin{array} { l }\text { Name }&\text { Shares Owned before Redemption }&\text { Adrusted Basis }\
\text { L3 } & \$ 4,000 \
\text { E12 } & 3,000\D&60&6,000\G&5&1,000\\text { MMM Corp. }&20&2,000\100
\end{array}$
L is E's mother and D owns 40 percent of MMM Corp; otherwise the parties are unrelated.TH has $100,000 in accumulated and current earnings and profits.All of the parties have owned their stock since the inception of the corporation.Assuming that TH redeemed all of G's stock for $8,000, its E&P will
A)Decrease by $8,000
B)Decrease by $5,000
C)Neither increase nor decrease
D)Decrease by $4,000
E)None of the above

Question

TH Inc.has been in the storage business for 10 years.Prior to a stock redemption, TH has 100 shares of stock outstanding.The stock owned and the number of shares redeemed from each shareholder are as follows: $\begin{array} { l  }\text { Name }&\text { Shares Owned before Redemption }&\text { Adrusted Basis }\
\text { L3 } & \$ 4,000 \
\text { E12 } & 3,000\D&60&6,000\G&5&1,000\\text { MMM Corp. }&20&2,000\100
\end{array}$
 L is E's mother and D owns 40 percent of MMM Corp; otherwise the parties are unrelated.TH has $100,000 in accumulated and current earnings and profits.All of the parties have owned their stock since the inception of the corporation.Assuming that TH redeemed all of G's stock for $8,000, its E&P will
A)Decrease by $8,000
B)Decrease by $5,000
C)Neither increase nor decrease
D)Decrease by $4,000
E)None of the above

Quizplus · Accepted Answer

The Answer of TH Inc.has been in the storage business for 10 years.Prior to a stock redemption, TH has 100 shares of stock outstanding.The stock owned and the number of shares redeemed from each shareholder are as follows: $\begin{array} { l  }\text { Name }&\text { Shares Owned before Redemption }&\text { Adrusted Basis }\
\text { L3 } & \$ 4,000 \
\text { E12 } & 3,000\D&60&6,000\G&5&1,000\\text { MMM Corp. }&20&2,000\100
\end{array}$
 L is E's mother and D owns 40 percent of MMM Corp; otherwise the parties are unrelated.TH has $100,000 in accumulated and current earnings and profits.All of the parties have owned their stock since the inception of the corporation.Assuming that TH redeemed all of G's stock for $8,000, its E&P will
A)Decrease by $8,000
B)Decrease by $5,000
C)Neither increase nor decrease
D)Decrease by $4,000
E)None of the above

TH IncHas Been in the Storage Business for 10 Years