Question

Six years ago, addie purchased 3,000 shares of lmn, inc. for $12 per share. she signed an agreement that allowed the company to use her dividend payments to purchase additional shares for her. over the last six years, addie received a total of $1,900 in dividend payments, which purchased an additional 145 shares of stock. what is her taxable gain if addie sells all of her shares for $52,000?

O $0
O $14,100
O $16,000
O $17,900

Answer 1

The taxable gain is approximately $14,100.50. The closest option is "O $14,100."

To calculate the taxable gain, we need to determine the cost basis of Addie's shares, which includes both the original purchase price and the additional shares purchased with the dividend payments.

Original Purchase:

Original Shares Cost=Number of Original Shares×Original Purchase Price per Share

`\text{Original Shares Cost} = 3,000 * $12 = $36,000`

Dividend Reinvestment:

Addie received $1,900 in dividend payments, which purchased an additional 145 shares.

Cost of Additional Shares=Number of Additional Shares×Average Cost per Additional Share

Average Cost per Additional Share= Total Dividend Payments/ Number of Additional Shares

`​\text{Average Cost per Additional Share} = ($1,900)/(145) \approx $13.10\\\text{Cost of Additional Shares} = 145 * $13.10 \approx $1,899.50`

Total Cost Basis:

Total Cost Basis=Original Shares Cost+Cost of Additional Shares

`\text{Total Cost Basis} = $36,000 + $1,899.50 \approx $37,899.50`

Taxable Gain:

Taxable Gain=Selling Price−Total Cost Basis

`\text{Taxable Gain} = $52,000 - $37,899.50 \approx $14,100.50`

Therefore, the taxable gain is approximately $14,100.50. The closest option is "O $14,100."