Question

George bought the following amounts of Stock A over the years: (Loss amounts should be indicated with a minus sign.)

Date Purchased Number of Shares Adjusted Basis
Stock A 11/21/1994 1,200 $ 28,800
Stock A 3/18/2000 600 10,800
Stock A 5/22/2009 950 34,200
On October 12, 2020, he sold 1,500 of his shares of Stock A for $38 per share.

a. How much gain/loss will George have to recognize if he uses the FIFO method of accounting for the shares sold?

Answer 1

Using the FIFO method, George will recognize a gain/loss of $17,040 when selling 1,500 shares of Stock A.

Step-by-step explanation:

To calculate the gain or loss using the FIFO method, we need to determine which shares were sold first. The FIFO method assumes that the oldest shares are sold first. In this case, George bought 1,200 shares on 11/21/1994, 600 shares on 3/18/2000, and 950 shares on 5/22/2009. Since he sold 1,500 shares, we can start by using the shares from the oldest purchase date.

First, we sell the 1,200 shares purchased on 11/21/1994. The cost basis for these shares is $28,800. Since 1,200 shares were sold, the gain/loss on these shares is ($38 - $28.80) x 1,200 = $11,040.

Next, we need to sell 300 shares from the 600 shares purchased on 3/18/2000. The cost basis for these shares is $10,800. Since we're selling 300 shares, the gain/loss on these shares is ($38 - $18) x 300 = $6,000.

In total, the gain/loss recognized using the FIFO method is $11,040 + $6,000 = $17,040.

Answer 2

George realizes a gain of $22,800 from the sale of 1,500 shares of Stock A using the FIFO method. This was calculated by subtracting the total basis of the sold shares ($34,200) from the total sales amount ($57,000).

Step-by-step explanation:

George wants to calculate the gain or loss from the sale of his shares using the FIFO (First In, First Out) method. To do this, we first identify which shares were sold. The FIFO method assumes the oldest shares are sold first. George bought 1,200 shares on 11/21/1994 at $28,800 total cost and an additional 600 shares on 3/18/2000 at $10,800 total cost.

Since he is selling 1,500 shares on 10/12/2020, he would first sell all 1,200 shares from 1994 and then sell 300 out of the 600 shares from the year 2000. To calculate the gain (or loss), we need to consider the adjusted basis of the sold shares:

• 1,200 shares bought at $28,800 equals a $24 per share basis.
• 300 shares bought at $10,800 (for the 600 shares, so $18 per share basis for each).

The total basis for the 1,500 shares is (1,200 x $24) + (300 x $18) = $28,800 + $5,400 = $34,200.

He sold the 1,500 shares for $38 each, so the total sales amount is 1,500 x $38 = $57,000.

To find the gain: $57,000 (total sales) - $34,200 (total basis) = $22,800.

Therefore, George realizes a gain of $22,800 from the sale using the FIFO method.