How is the $10,000 cost basis determined? I keep getting $15,000 for the determi
ID: 2553360 • Letter: H
Question
How is the $10,000 cost basis determined? I keep getting $15,000 for the determined loss and then (1/3) of that, which is $5,000 loss that cannot be recognized, but that's not the correct answer. What am I doing wrong?
Broward Corp. owns 1,500 shares of Silver Fox Corporation common stock. Broward Corp. purchased the 1,500 shares on April 17, 2011, for $20,000. On December 8, 2016, Broward sells 750 shares for $5,000. On January 2, 2017, Broward Corp. buys 250 shares of Silver Fox Corporation common stock for $1,750 and 50 shares of Silver Fox Corporation preferred stock for $1,000. The preferred stock is nonvoting, nonconvertible.
a. What is Broward’s realized and recognized loss on the December 8 sale of stock?
Explanation / Answer
Solution:
Realized gain (loss) = Proceeds from sale of shares - cost of shares = $5000 - $10000 = ($5,000)
Disallowed loss = Realized loss*(shares Purchased within 61 days period/ shares sold)
= 5000*(250/750) = $1,667
Recognized loss = Realized loss - Disallowed loss
= $5000 - $1,667 = $3,333