Question

On January 15 of the current year, Henry sold stock with a basis of $7,000 to his grandson Isaac for $4,000, its fair market value on that date. On December 30 of the current year, Isaac sold the same stock for $8,000 to a friend in a bona fide, arms-length transaction. As a result of these transactions, A. Isaac has a recognized gain of $4,000. B. Isaac has a recognized gain of $1,000. C. Henry has a recognized loss of $3,000. D. Neither Henry nor Isaac has a recognized gain or loss.

Answer 1

B. Isaac has a recognized gain of $1,000

Step-by-step explanation:

Issac's basis in computing gain is $7,000

Therefore, Gain = Selling Price - Basis Price

Gain = $8000 - $7,000

= $1,000

Issac has a recognized gain of $1000