The outstanding stock of Bluebird, Inc. is owned by the following shareholders:

Question

The outstanding stock of Bluebird, Inc. is owned by the following shareholders:

Shares Owned

Greg Stanton 500 shares

Julie Stanton 500 shares

Sarah Johnson 250 shares

Conner Young    250 shares

Total shares outstanding 1,500 shares

Greg and Julie are husband and wife. Sarah is Greg's sister. Connor is unrelated to Gregl. In July, Bluebird, Inc. redeemed 300 of Greg's shares for $900,000. Determine whether the transaction will be considered a redemption or a dividend. Include in your answer a summary of the redemption rules and why you concluded whether the transaction in the above example did or did not qualify for redemption treatment.

Explanation / Answer

The outstanding stock of Bluebird, Inc. is owned by the following shareholders:

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