Question

In 2019, Mr. Dale paid $45,600 for 3,800 shares of GKL Mutual Fund and elected to reinvest his year-end dividends in additional shares. In 2019 and 2020, he received Form 1099s reporting the following:

Dividends Reinvested Shares Purchased Price per Share Total Shares Owned
2019 $5,510 341 $16.158 4,141
2020 6, 212 396 15.687 4,537

Assume the taxable year is 2021.

Required:
a. If Mr. Dale sells his 4,537 shares for $16 per share, compute his recognized gain.

Answer 1

Mr. Dale's potential recognized capital gain from selling 4,537 shares for $16 per share, based solely on his initial investment, would be $26,992. This figure disregards any adjustments from reinvested dividends due to incomplete data.

Step-by-step explanation:

To compute the recognized gain on the sale of shares, we first need to know the original cost of purchasing the shares (cost basis) and the price for which the shares were sold. Mr. Dale initially purchased 3,800 shares of GKL Mutual Fund for $45,600. If he sells his 4,537 shares for $16 per share, the total sale proceeds would be 4,537 shares multiplied by $16 per share, equating to $72,592.

The recognized capital gain is the difference between the sale proceeds and the cost basis. However, since the question does not provide all details regarding reinvested dividends, and how they altered the cost basis, we use just the information given: the initial investment. The capital gain in this simplified scenario would be $72,592 (sale proceeds) minus $45,600 (original cost) which equals $26,992. This is the amount Mr. Dale would potentially recognize as a capital gain from the sale of the shares, ignoring the additional shares purchased with reinvested dividends.

It is important to note that for the exact capital gain calculation, one would need to consider the adjusted cost basis taking into account the reinvested dividends, which are not specified in the provided data.