Homework Answers
Answer:
Brian Bradley 1000 purchased shares of Newton Corp for $15,000 on October 23, 2018.
He purchased the shares at price of (15000 / 100 =) $150
He sold these shares on January 11, 2019 for $7000..Sale price per share (7000 / 100 = ) $70
As such loss incurred = $15,000 - $7000 = $8,000. Loss per share = (150 - 70 = ) $80.
However this loss will not be allowed due to wash sale rule, since he purchased back these shares within 30 days of sale. He purchased on each of four days between January 14 through January 17, 500 substantially identical shares for $3,000. Purchase price per share is (3000 /500 =) $60.
As loss incurred on sales dated January 11, would be disallowed and deferred, tax effect = $0
The loss of $80 per share incurred for 1000 shares will added to the basis of 1000 shares purchased on 14th and 15th January.
Adjusted basis for each of 4 batches:
1st batch of 500 shares = $3000 + 80 * 500 = 3000 + $4000 = $7,000
2nd batch of 500 shares = $3000 + 80 * 500 = 3000 + $4000 = $7,000
3rd batch of 500 shares = $3,000
34th batch of 500 shares = $3,000
Hence:
Tax effect of sales transaction = $0
Adjusted basis for each of 4 batches:
1st batch of 500 shares = $7,000
2nd batch of 500 shares = $7,000
3rd batch of 500 shares = $3,000
34th batch of 500 shares = $3,000
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