Question

Deirdre sold 100 shares of stock to her brother, James, for $2,400. Deirdre purchased the stock several years ago for $3,000.

a. What gain or loss does Deirdre recognize on the sale?

b. What amount of gain or loss does James recognize if he sells the stock for $3,200?

c. What amount of gain or loss does James recognize if he sells the stock for $2,600?

d. What amount of gain or loss does James recognize if he sells the stock for $2,000?

Answer 1

Deirdre recognizes a loss of $600 from selling her stock to James. If James sells the stock, he could recognize a gain of $800 for a sale at $3,200, a gain of $200 for a sale at $2,600, or a loss of $400 for a sale at $2,000.

Step-by-step explanation:

To answer the student's question, we need to calculate the capital gain or loss from buying and selling stocks for each scenario presented:

1. Deirdre's gain or loss on sale to James: Gain/Loss = Selling Price - Purchase Price
2. James's gain or loss if he sells the stock for $3,200: Gain/Loss = Selling Price - Purchase Price (which is Deirdre's selling price)
3. James's gain or loss if he sells the stock for $2,600: Gain/Loss = Selling Price - Purchase Price
4. James's gain or loss if he sells the stock for $2,000: Gain/Loss = Selling Price - Purchase Price

Calculations

a. Deirdre's loss is calculated as follows:
Loss = $2,400 - $3,000 = -$600

b. James's gain if he sells the stock for $3,200:
Gain = $3,200 - $2,400 = $800

c. James's gain if he sells the stock for $2,600:
Gain = $2,600 - $2,400 = $200

d. James's loss if he sells the stock for $2,000:
Loss = $2,000 - $2,400 = -$400

Answer 2

Deirdre recognizes a loss of $600 on the sale of the stock to her brother. If James sells the stock for $3,200, he recognizes a gain of $800. If James sells the stock for $2,600, he recognizes a gain of $200. If James sells the stock for $2,000, he recognizes a loss of $400.

Step-by-step explanation:

a. To calculate the gain or loss that Deirdre recognizes on the sale, we need to subtract the cost of the stock from the selling price. Gain or loss is calculated as follows:

Gain or Loss = Selling Price - Cost

Deirdre sold the stock for $2,400, which is less than the cost of $3,000. Therefore, Deirdre recognizes a loss of $600 on the sale.

b. To calculate the gain or loss that James recognizes if he sells the stock for $3,200, we use the same formula:

Gain or Loss = Selling Price - Cost

The selling price is $3,200 and the cost is $2,400, so James recognizes a gain of $800.

c. If James sells the stock for $2,600, the gain or loss would be calculated as:

Gain or Loss = Selling Price - Cost

Using the formula, we have: Gain or Loss = $2,600 - $2,400 = $200. Therefore, James would recognize a gain of $200.

d. If James sells the stock for $2,000, the gain or loss would be calculated as:

Gain or Loss = Selling Price - Cost

Using the formula, we have: Gain or Loss = $2,000 - $2,400 = -$400. Therefore, James would recognize a loss of $400.