Puffin Corporation's 2,000 shares outstanding are owned as follows: Paul, 800 shares? Sandra (Paul's sister), 800 shares? and Greta (Paul's granddaughter), 400 shares. During the current year, Puffin (E & P of $1 million) redeemed 600 shares of Paul's stock for $100,000. If Paul had acquired the 600 shares five years ago for $30,000, he will have a long-term capital gain of $70,000 from the redemption.

Question

Quizplus · Accepted Answer

Paul's basis in the 600 redeemed shares was $30,000. The amount realized from the redemption was $100,000. Therefore, Paul has a long-term capital gain of $70,000 ($100,000 - $30,000).

Puffin Corporation's 2,000 Shares Outstanding Are Owned as Follows: Paul