Question

Kevin purchases 1,000 shares of Bluebird Corporation stock on October 3, 2019, for $475,000. On December 12, 2019, Kevin purchases an additional 750 shares of Bluebird stock for $332,500. According to market quotations, Bluebird stock is selling for $475 per share on 12/31/19. Kevin sells 500 shares of Bluebird stock on March 1, 2020, for $266,000.
a. What is the adjusted basis of Kevin?

Answer 1

Answer:

The adjusted basis of Kevin is :

Current number of Shares:  1250[After Sales]

Share Price: $475[Last revaluation figure of Bluebird]

Current Value: $593,750[1,250 * $475]

Explanation:

Recognition of gain on disposal of an investments in Shares are accounted for using the Fair Value method. The Fair value method is applied to Share Investments not exceeding 20% of a company's stock. Investments of this nature are revalued at each reporting date while gain or loss are recognized through Profit and Loss account.

An income is realized when the value of the sold investments exceeds the reporting value. Likewise a loss is recorded when the value of the sold investments falls below the reporting value.

Kevin's investment will still be valued at the Bluebird's last revaluation date which is 12/31/19 -$475.

Therefore the remaining shares of 1250 units is multiplied by $475 to arrive at  $593,750