Question

Brock received 800 shares of Jackson Corporation stock from his uncle as a gift on July​ 20, 2018 when the stock had a $176,000 FMV. His uncle paid $80,000 for the stock on April​ 12, 2002. The taxable gift was $176,000​, because his uncle made another gift to Brock for $25,000 in January and used the annual exclusion. The uncle paid a gift tax of $26,400. Without considering the transactions​ below, Brock's AGI is $35,000 in 2019 No other transactions involving capital assets occur during the year.

Analyze each transaction​ below, independent of the​ others, and determine Brock's

AGI in each case. ​(Do not round intermediary calculations. Only round the amounts you input in the cells to the nearest dollar. Use a minus sign or parentheses to enter a​ loss.)

a.	He sells the stock on October​ 12, 2019, for $182,500.
b.	He sells the stock on October​ 12, 2019, for $93,100.
c.	He sells the stock on December​ 16, 2019​, for $174,000.

	AGI prior to sale of stock	+	Gain (loss) on sale of stock	=	AGI

A. 35000 + __________________________ = _______

B 35000 +   ___________________________ = _______

C 35000 +   __________________________ = _______

Answer 1

What we need to consider is the FMV of the stock when Brock received it. As Brock paid nothing for the stock his capital had increased when he had received the gift.

The entry passed in books would be:

Investment in stock A/c Dr. $ 176000

To Capital A/c $ 176000

Now we take each scenario into account:

A. Brock sells the stock for $ 182500

The entry passed in books would be:

Cash/Bank A/c Dr. $ 182500

To Investment in stock A/c $ 176000

To Profit on sale of stock A/c $ 6500

Therefore, his AGI increases by $ 6500 due to this profit.

B. Brock sells the stock for $ 93100

The entry passed in books would be:

Cash/Bank A/c Dr. $ 93100

Loss on sale of stock A/c Dr. $ 82900

To Investment in stock A/c $ 176000

Therefore, his AGI decreaes by $ 82900 due to this loss.

C. Brock sells the stock for $ 174000

The entry passed in the books would be:

Cash/Bank A/c Dr. $ 174000

Loss on sale of stock A/c Dr. $ 2000

To Investment in stock A/c $ 176000

Therefore, his AGI decreases by $ 2000 due to this loss.

As required by the question his Net AGI is:

Sl. No.	AGI prior to sale of stock	+	Gain (loss) on sale of stock	=	AGI
A.	$ 35000	+	$ 6500	=	$ 41500
B.	$ 35000	+	($ 82900)	=	($ 47900)
C.	$ 35000	+	($ 2000)	=	$ 33000