Question

One of your clients buys 300 shares of RIF common stock in March at $25 per share. Three months later, the client purchases 200 shares of the RIF at $30 per share. One month later, RIF pays a dividend of $1 per share. Then, 5 months later, another purchase of the RIF is made–this time 400 shares at $35 per share. If the client were to sell all of the RIF at $30 per share, what is the client's capital gain or loss?

1) 500 gain
2) No gain or loss
3) 500 loss
4) 400 gain

Answer 1

To calculate the capital gain or loss, subtract the total cost of purchasing the shares from the total sale proceeds plus dividends. The client has a capital gain of $400 after selling all the shares.

Step-by-step explanation:

To determine the client's capital gain or loss from selling the shares of RIF stock, we need to calculate the total cost of purchasing the shares, the total amount received from selling the shares, and then subtract the purchase cost from the sale proceeds.

• First purchase: 300 shares at $25/share = $7,500
• Second purchase: 200 shares at $30/share = $6,000
• Third purchase: 400 shares at $35/share = $14,000

Total cost of purchasing shares = $7,500 + $6,000 + $14,000 = $27,500

Dividends received: ($1/share × 900 shares) = $900

Total shares sold: 900 shares at $30/share = $27,000

Sale proceeds plus dividends received = $27,000 + $900 = $27,900

Finally, the capital gain or loss is calculated by subtracting the purchase cost from the sale proceeds plus dividends:

Capital gain/loss = $27,900 - $27,500 = $400

Therefore, the client has a capital gain of $400.