Basics of remaining stock after the redemption


Medium Inc. had one class of stock outstanding. The one class of stock was owned 50 percent by Linda and 25 percent by each of Linda's parents. In the current taxable year, Medium Inc. redeemed 25 percent of Linda's 50 percent, and in exchange for the stock, Medium Inc. distributed to Linda a building that had an adjusted basis to Medium Inc. of $10,000 and a fair market value of $50,000. Assume that Medium Inc.'s current earnings and profits were $200,000, there were no accumulated earnings and profits, and Linda's total basis in her stock before the redemption was $20,000. How much is Linda's basis in her remaining stock after the redemption, and what is her basis in the building?

a. Stock basis: $10,000; building basis: $10,000.

b. Stock basis: $10,000; building basis: $50,000.

c. Stock basis: $20,000; building basis: $10,000.

d. Stock basis: $20,000; building basis: $50,000.

e. None of the above.

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Accounting Basics: Basics of remaining stock after the redemption
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