Canary Corporation has 5,000 shares of stock outstanding. It redeems in a qualifying stock redemption 1,200 shares for $475,000 at a time when it has paid-in capital of $300,000 and E & P of $1.5 million. What would be the charge to Canary's E & P as a result of the redemption?
A) $72,000
B) $300,000
C) $432,000
D) $475,000
E) None of the above

Question

Quizplus · Accepted Answer

In a qualifying stock redemption, the charge to Earnings and Profits (E & P) is determined by the amount of the distribution that exceeds the paid-in capital attributable to the redeemed shares. Since the question does not provide enough information to calculate the portion of the $475,000 that exceeds the paid-in capital attributable to the redeemed shares, none of the provided options can be definitively chosen as correct without additional information. Therefore, the correct answer is E) None of the above.

Canary Corporation Has 5,000 Shares of Stock Outstanding