Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 200 shares for $200,000 at a time when it has paid-in capital of $100,000 and E & P of $800,000.What would be the charge to Canary's E & P as a result of the redemption?

Question

Quizplus · Accepted Answer

The charge to E & P in a qualifying stock redemption is the lesser of the amount paid for the shares ($200,000) or the proportionate share of E & P attributable to the redeemed shares. The proportionate share of E & P is calculated as (200 shares / 1000 shares) * $800,000 = $160,000. Thus, the charge to E & P is $160,000.

Canary Corporation Has 1,000 Shares of Stock Outstanding