Question

Jacob Corcoran bought 10,000 shares of Grebe Corporation stock two years ago for $24,000. Last year, Jacob received a nontaxable stock dividend of 2,000 shares in Grebe Corporation. In the current tax year, Jacob sold all of the stock received as a dividend for $18,000.
Required:

a. Complete the letter to Jacob describing the tax consequences of the stock sale.

b. Prepare a memo for the tax research file describing the tax consequences of the stock sale.

c.

Answer 1

Answer:

Jacob purchased 10000 shares form Grebe corporation two years ago for $24000

last year Jacob received a non taxable stock dividend of 2000 shares from Grebe corporation

In the current year tax year Jacob sold all stock received as dividend that's 2000 shares for $18000

The gain of the sale of 2000 shares can be calculated by subtracting the basis in the shares from the cost price. the cost of shares = ( $24000 / 12000 ) = $2 per share

profit made from the sales of 2000 shares is calculated as follows ; selling price ( $18000 ) - cost price of 2000 shares ( $2 * 2000) , the profit is $14000 and it is in the long term because the original shares bought has been held for at least 1 year

Explanation:

Jacob purchased 10000 shares form Grebe corporation two years ago for $24000

last year Jacob received a non taxable stock dividend of 2000 shares from Grebe corporation

In the current year tax year Jacob sold all stock received as dividend that's 2000 shares for $18000

The gain of the sale of 2000 shares can be calculated by subtracting the basis in the shares from the cost price. the cost of shares = ( $24000 / 12000 ) = $2 per share

profit made from the sales of 2000 shares is calculated as follows ; selling price ( $18000 ) - cost price of 2000 shares ( $2 * 2000) , the profit is $14000 and it is in the long term because the original shares bought has been held for at least 1 year