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14 September, 05:53

Terry owns Lakeside, Inc. stock (adjusted basis of $80,000), which she sells to her brother, Jake, for $64,000 (its fair market value). Eighteen months later, Jake sells the stock to Pamela, a friend, for $78,000 (its fair market value). What is Terry's recognized loss, Jake's recognized gain or loss, and Pamela's adjusted basis for the stock?

Terry's Recognized Loss Jake's Recognized Gain (Loss) Pamela's Basis

A. $ - 0 - $ - 0 - $78,000

B. $ - 0 - $14,000 $64,000

C. $ - 0 - $14,000 $78,000

D. $16,000 $14,000 $78,000

E. None of these.

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  1. 14 September, 05:59
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    D. $16,000 $14,000 $78,000

    Explanation:

    Step 1: Determine Terry's adjusted basis

    Terry's adjusted basis=$80,000

    Step 2: Determine Terry's recognized loss

    Terry's recognized loss=Terry's adjusted basis-fair market value at sale

    where;

    Terry's adjusted basis=$80,000

    fair market value at sale=$64,000

    replacing;

    Terry's recognized loss = (80,000-64,000) = $16,000

    Terry's recognized loss=$16,000

    Step 3: Determine Jake's recognized gain

    Jake's recognized gain=Fair market value at sale-Jake's adjusted basis

    where;

    Fair market value at sale=$78,000

    Jake's adjusted basis=$64,000

    replacing;

    Jake's recognized gain = (78,000-64,000) = $14,000

    Step 4: Determine Pamela's Basis

    Pamela's Basis=fair market value at sale=$78,000
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