Reference no: EM132646762

Problem - Stork Corporation (E & P of $850,000) has 1,000 shares of common stock outstanding. The shares are owned by the following individuals: Lana Johnson, 400 shares; Lori Jones (Lana's mother), 200 shares; and Leo Jones (Lana's brother), 400 shares. Lana paid $200 per share for the Stork stock eight years ago. Lana is interested in reducing her stock ownership in Stork via a stock redemption for $1,000 per share, the fair market value of the stock. Stork Corporation would distribute cash for the entire redemption transaction. In late October, Lana inquired as to the minimum number of shares she would have to redeem to obtain favorable long-term capital gain treatment and the overall tax consequences of such a redemption to both her and Stork Corporation.

Required -

a. Prepare a letter to Lana (1000 Main Street, St. Paul, MN 55166) and a memo for the file in which you explain your conclusions.

b. Using Microsoft Excel (or a similar software program), create a spreadsheet template that computes the minimum shares that must be redeemed to qualify for a disproportionate redemption. For Microsoft Excel, use the Solver Add-in in your template.