Tiger Corporation owns 40,000 shares of Valley Corporation common stock, which i
ID: 2411627 • Letter: T
Question
Tiger Corporation owns 40,000 shares of Valley Corporation common stock, which it purchased on March 8,2011, for $1,320,000. On October 3, 2017, Tiger purchases an additional 12,000 shares for $336,000. On October 12, 2017, it sells the original 40,000 shares for $1,140,000. On November 1, 2017, it purchases an additional 12,000 shares for $330,000 Read the requirements Requirement a. What is Tiger's recognized gain or loss as a result of the sale on October 12, 2017? Tiger would recognize a $as a result of the sale on October 12,2017 Requirements What is Tiger's recognized gain or loss as a result of the sale on October 12, 2017? What are the basis and the holding period of the stock Tiger continues to hold? How would your answers to Parts a and b change if the stock Tiger purchases during 2017 is Valley nonvoting, nonconvertible, preferred stock instead of Valley common stock? a. b. c. Print DoneExplanation / Answer
a. Tiger Corporation Incurs a capital loss of $ ( 1,140,000 - 1,320,000) = $ (180,000)
However, Tiger Corporation can only recognize a loss of 40 % of the total loss, i.e $ 180,000 x 0.40 = $ 72,000 of the loss.
Total number of shares of Valley Corporation purchased by Tiger Corporation within 30 days before and 30 days after the sale = 24,000 shares. Therefore 60% of the loss, i.e 24,000 / 40,000 will be disallowed under the wash sale rules.
b. The basis in the 12,000 shares purchased prior to the sale = Purchase Price + !2,000 / 24,000 of disallowed loss = $ 336,000 + $ 108,000 x 50% = $ 390,000.
The basis in the 12,000 shares purchased following the sale = $ 330,000 + $ 54,000 = $ 384,000.
The holding period for both of these blocks of shares starts from March 8, 2011.
c. Tiger Corporation will recognize a loss of $ 180,000, as wash sales rules do not apply to preferred stock. The basis of the stock would be the purchase prices of $ 336,000 and $ 330,000 respectively. The holding period would start on the respective dates of actual purchases, i.e October 3 and November 1.