Question

A customer is short 100 shares of ABC stock at $40 per share. The stock goes up to $50 and the customer covers the position. If, 30 days later, the customer decides to re-establish this short position when the market for ABC is $55, which of the following statements are TRUE?
I The loss deduction is disallowed
II The loss is allowed
III The sales proceeds are $45 per share
IV The sales proceeds are $55 per share


A. I and III
B. I and IV
C. II and III
D. II and IV

Answer 1

A. I and III is the true statement.

I The loss deduction is disallowed

III The sales proceeds are $45 per share

Explanation:

Stock refers to the shared owned by an organization. In the above scenario, ABC stock was sold at $40 per share. A customer purchases 100 shares of ABC stock. The price of the stock goes to $50. After 30 days, the customer decides to re-establish the ABC stock. Now the price of the ABC stock is $55.

During this transaction, the deduction of the loss is not allowed and the sale proceeds are fixed as $45 per share.