Question

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2018, he sells 400 shares for $5,200, while on May 5, 2018, he purchases 200 shares for $3,600.

a. What is Mitch's recognized gain or loss resulting from these transactions?

A. Recognized Gain of $1,200

B. Recognized Loss of $1,200

C. Recognized Gain of $800

D. Recognized Loss of $800

Answer 1

Mitch has a recognized capital loss of $800 from the sale of 400 shares of Oriole Corporation common stock, based on the basis of $6,000 and a selling price of $5,200.

Step-by-step explanation:

To calculate Mitch's recognized gain or loss from the sale of the Oriole Corporation common stock, we need to consider the basis of the shares sold and the selling price. The basis is the cost of acquiring the asset that Mitch sells to determine the gain or loss. Mitch's adjusted basis for the entire 1,000 shares is $15,000.

First, let's determine the basis for the 400 shares he sold. The per-share basis is calculated by dividing the total basis by the number of shares, which is $15,000 / 1,000 shares = $15 per share. Therefore, the basis for the 400 shares is 400 shares * $15 per share = $6,000.

Mitch sells the 400 shares for $5,200, so his realized gain or loss is the selling price minus the basis of the shares sold. Therefore, the gain or loss is $5,200 (selling price) - $6,000 (basis) = -$800.

Mitch has a recognized capital loss of $800 from this transaction. It is important to note that the subsequent purchase of 200 shares for $3,600 does not affect the calculation of gain or loss for the shares sold.