At a time when Blackbird Corporation had E & P of $700,000 and 1,000 shares of stock outstanding, the corporation distributed $300,000 to redeem 400 shares of its stock. The transaction qualified as a disproportionate redemption for the shareholder. Blackbird’s E & P is reduced by $300,000 as a result of the distribution.
Answer the following statement true (T) or false (F)
False
Rationale: The reduction in Blackbird’s E & P is the lesser of (1) the amount of the distribution ($300,000) or (2) the same percentage of E & P as the percentage of stock redeemed (40% × $700,000 = $280,000).
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