Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![**Exercise 7-21 (LO. 2)**
**Scenario:**
On May 9, 2018, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as § 1244 stock (at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15, 2020, Calvin sold all of his Hobbes stock for $7,000.
**Task:**
Assuming that Calvin is single, determine his tax consequences as a result of this sale.
**Instructions:**
If an amount is zero, enter "0".
**Result of the Sale:**
- **Ordinary loss:** $50,000 ✓
- **Short-term capital loss:** $0 ✓
- **Long-term capital loss:** (No input, incorrect entry) ✗
**Feedback:**
There appears to be a misunderstanding in calculating the long-term capital loss. Ensure that tax treatments are applied correctly according to § 1244 stock regulations. Consider applicable gain or loss treatments upon the sale or exchange of stock as described under the relevant tax codes.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F04ac38f5-2f00-4082-9603-779a222049c9%2F939a6dfe-d15c-4ad9-9708-30e7b212e4a8%2F24jmks_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Exercise 7-21 (LO. 2)**
**Scenario:**
On May 9, 2018, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as § 1244 stock (at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15, 2020, Calvin sold all of his Hobbes stock for $7,000.
**Task:**
Assuming that Calvin is single, determine his tax consequences as a result of this sale.
**Instructions:**
If an amount is zero, enter "0".
**Result of the Sale:**
- **Ordinary loss:** $50,000 ✓
- **Short-term capital loss:** $0 ✓
- **Long-term capital loss:** (No input, incorrect entry) ✗
**Feedback:**
There appears to be a misunderstanding in calculating the long-term capital loss. Ensure that tax treatments are applied correctly according to § 1244 stock regulations. Consider applicable gain or loss treatments upon the sale or exchange of stock as described under the relevant tax codes.
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