Question

Richard sells Jefferson Corporation stock with an adjusted basis of $8,000 for $13,000. Which of the following statements is true?

A) Richard incurs a realized loss of $5,000.

B) Richard incurs a realized gain of $5,000.

C) Richard incurs a recognized loss of $5,000.

D) Richard incurs a recognized gain of $5,000.

Answer 1

Richard incurs a realized gain of $5,000.

Step-by-step explanation:

To determine whether Richard incurred a realized gain or loss, we need to compare the selling price ($13,000) to the adjusted basis ($8,000). If the selling price is higher than the adjusted basis, it indicates a gain.

If the selling price is lower than the adjusted basis, it indicates a loss. In this case, since $13,000 is higher than $8,000, Richard incurs a realized gain of $5,000.

However, to determine whether Richard incurs a recognized gain or loss, we need to consider any tax implications. If Richard sells the stock and recognizes the gain for tax purposes, then he would also incur a recognized gain of $5,000.

If Richard does not recognize the gain for tax purposes, then he would not incur a recognized gain. Therefore, it is possible for Richard to incur a realized gain of $5,000 but not necessarily a recognized gain.

Therefore, the correct statement is: Richard incurs a realized gain of $5,000.