Refer to the “Basis of Securities Sold” discussion following Example 25 in Chapter 11. (Concepts in Federal Taxation, 2021th Edition, Murphy, Higgins, Skalberg)You have always loved ABC Corp. and its wonderful products and so have been an investor in its stock for years. In fact whenever you could you added to your stockholdings in ABC, as follows:11/2016 – 100 shares at $18 per share (initial purchase)04/2017 – 100 shares at $22 per share12/2017 – 100 shares at $24 per share06/2018 – 100 shares at $25 per share09/2019 – 100 shares at $29 per shareNeeding cash for a down payment on a new house, today you sold 250 shares at $36 per share. But, distracted by the wonderful new home that you are about to own, you forgot to instruct your online broker exactly which shares you were sell-ing. What is the amount and character of your gain on today’s sale? Basis of Securities SoldWhen taxpayers sell only some of the securities they hold, the shares being sold must be identified if the securities were purchased atdifferent times and at different prices. Because securities are generic, it is often difficult to precisely identify specific shares as being from aspecific purchase. The tax law provides that, in the absence of a specific identification of the shares sold, the shares are sold in a first-in,first-out (FIFO) order.*Example 26.On December 10, 2020, DeWitt sells 400 shares of Rubble, Inc., common stock for $8,000 and pays a $500 commission on the sale.DeWitt had purchased his Rubble shares as follows:Purchase DateNumber of SharesCostFebruary 10, 2019200$3,000December 19, 2019300$3,000What is DeWitt's gain or loss on the sale of the 400 shares? What is DeWitt's gain or loss on the sale of the 400 shares?DISCUSSION: DeWitt's amount realized on the sale of the 400 shares is $7,500 ($8,000 – $500). Because he purchased the 500shares at two different times and at different prices, he must either specifically identify the shares sold or determine the basis of the400 shares in first-in, first-out order. Assuming that DeWitt does not specifically identify the 400 shares, his basis would be $5,000:$3,000Basis of 200 shares from February purchaseBasis of 200 shares from December purchase$3,000 + 300 = $10 per share x 200 sharesBasis of 400 shares2,000$5,000DeWitt realizes a gain of $750 ($3,750 – $3,000) on the shares purchased in February. The $750 gain is a long-term capital gain(because the stock was held more than 12 months). He realizes a $1,750 ($3,750 – $2,000) gain on the sale of the shares purchasedin December. The $1,750 gain is a short-term capital gain (because the shares were held 12 months or less).The first-in, first-out rule for the sale of securities can be overridden by directing in writing that certain lots of securities are to be sold. Thus,a taxpayer who has purchased shares at different times and at different prices can determine the amount of gain or loss to be recognized ona particular sale of shares.

(1) If Tax payers involved in purchasing and selling of shares at multiple times then it is…

Answered: You have always loved ABC Corp. and its…

FINANCIAL ACCOUNTING

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Chapter1: Financial Statements And Business Decisions

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Refer to the “Basis of Securities Sold” discussion following Example 25 in Chapter 11. (Concepts in Federal Taxation, 2021th Edition, Murphy, Higgins, Skalberg)

You have always loved ABC Corp. and its wonderful products and so have been an investor in its stock for years. In fact whenever you could you added to your stockholdings in ABC, as follows:

11/2016 – 100 shares at $18 per share (initial purchase)
04/2017 – 100 shares at $22 per share
12/2017 – 100 shares at $24 per share
06/2018 – 100 shares at $25 per share
09/2019 – 100 shares at $29 per share

Needing cash for a down payment on a new house, today you sold 250 shares at $36 per share. But, distracted by the wonderful new home that you are about to own, you forgot to instruct your online broker exactly which shares you were sell-ing. What is the amount and character of your gain on today’s sale?

Basis of Securities Sold
When taxpayers sell only some of the securities they hold, the shares being sold must be identified if the securities were purchased at
different times and at different prices. Because securities are generic, it is often difficult to precisely identify specific shares as being from a
specific purchase. The tax law provides that, in the absence of a specific identification of the shares sold, the shares are sold in a first-in,
first-out (FIFO) order.*
Example 26.
On December 10, 2020, DeWitt sells 400 shares of Rubble, Inc., common stock for $8,000 and pays a $500 commission on the sale.
DeWitt had purchased his Rubble shares as follows:
Purchase Date
Number of Shares
Cost
February 10, 2019
200
$3,000
December 19, 2019
300
$3,000
What is DeWitt's gain or loss on the sale of the 400 shares?

What is DeWitt's gain or loss on the sale of the 400 shares?
DISCUSSION: DeWitt's amount realized on the sale of the 400 shares is $7,500 ($8,000 – $500). Because he purchased the 500
shares at two different times and at different prices, he must either specifically identify the shares sold or determine the basis of the
400 shares in first-in, first-out order. Assuming that DeWitt does not specifically identify the 400 shares, his basis would be $5,000:
$3,000
Basis of 200 shares from February purchase
Basis of 200 shares from December purchase
$3,000 + 300 = $10 per share x 200 shares
Basis of 400 shares
2,000
$5,000
DeWitt realizes a gain of $750 ($3,750 – $3,000) on the shares purchased in February. The $750 gain is a long-term capital gain
(because the stock was held more than 12 months). He realizes a $1,750 ($3,750 – $2,000) gain on the sale of the shares purchased
in December. The $1,750 gain is a short-term capital gain (because the shares were held 12 months or less).
The first-in, first-out rule for the sale of securities can be overridden by directing in writing that certain lots of securities are to be sold. Thus,
a taxpayer who has purchased shares at different times and at different prices can determine the amount of gain or loss to be recognized on
a particular sale of shares.

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