Question

Helmut purchases 100 shares of stock in Caisson Corporation for $1,000 in Year 1. On December 1 of Year 2, he purchases an additional 100 shares in the company for $1,500. On December 28 of Year 2, Helmut sells the 100 shares acquired in Year 1 for $1,200. What is Helmut’s recognized gain or loss from the December 28 sale, and what is his resulting basis in the stock purchased on December 1 of Year 2?

Answer 1

The correct answer is $200 gain; $1500.

Step-by-step explanation:

• In year 1, Helmut buys 100 shares at $1000. He sells the 100 shares bought in year 1 on December 28 year 2 at $1200. So:

Profit = (Sale price-Purchase price)

Profit = $1200 - $1000

Profit = $200

For the purchase and sale of the initial 100 shares, Helmut earned $200 of profit.

• Cost basis is the original amount in an investment for a determined asset adjusted due to stock splits. In Helmut's case, for the 100 shares purchased on December 28, his investment is $1500.