On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation X....

On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation X. The bond was purchased for $10,000, had a face value of $10,000 and paid 10% interest ($1,000) on December 31 of each year. The stock was purchased for $10,000 and paid a dividend of $1,000 on December 31, ex- dividend date December 15. T sold both the X stock and the X bond on July 1, of Year 1. The bond sold for $10,300 and the stock sold for $11,000. What income, gain or loss, including character type (e.g. capital gain, interest, dividend, ordinary) will T recognize as a result of the sales? __________________________________ BOND __________________________________ STOCK

Solutions

Expert Solution

Income from Bond:

Interest Income = $1000

Gain on sale of Bond = $10300 - $10000

= $300 (Capital Gain)

Income from Stock

Dividend Income = $1000

Gain on sale of Stock = $11000 - $10000

= $1000 (Capital Gain)

Note: The character on sale of bond and stock depends on the nature of activity Taxpayer T is carrying on. Like if its ordinary business is of Purchasing and selling bond, stock than it would be consider as Ordinary Gain otherwise capital gain. Also to term as capital gain requirement of minimum holding period must be fulfilled. It is assumed that both the conditions are fulfilled.

ekkarill92 answered 9 months ago

Next > < Previous

Related Solutions

On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation X....

4. On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation...

4. On January 1, Year 1, Taxpayer (“T”) purchased both a bond and stock of Corporation X. The bond was purchased for $10,000, had a face value of $10,000 and paid 10% interest ($1,000) on December 31 of each year. The stock was purchased for $10,000 and paid a dividend of $1,000 on December 31, ex- dividend date December 15. T sold both the X stock and the X bond on July 1, of Year 1. The bond sold for...

On January 1, 20X1, Warner Corporation purchased 40% of the common stock of ABC Corporation for...

On January 1, 20X1, Warner Corporation purchased 40% of the common stock of ABC Corporation for $400,000. This purchase gives Warner a significant influence in ABC?s operations. During the year, ABC earned total net income of $200,000 and paid total dividends of $40,000 to common stockholders. The fair market value of the stock at year end is $450,000. Prepare the required 20X1 journal entries for the Warner Corporation?s purchase of stock in ABC Corporation:

Oliver, a calendar-year taxpayer, owns 50 shares of Copper Corporation stock, which was purchased two years...

Oliver, a calendar-year taxpayer, owns 50 shares of Copper Corporation stock, which was purchased two years ago for $30,000. Oliver sells all 50 shares on December 31, of the current year (2019), for $20,000 and on January 15 (2020), of the following year, purchases 25 shares of Copper Corporation stock. Oliver's recognized loss will be (LABEL AND SHOW ALL WORK WITH CALCULATIONS) A) $0 B) $5,000. C) $7,500. D) $10,000.

On August 1, 2012, all of the outstanding stock of Bridge Corporation (a calendar year taxpayer)...

On August 1, 2012, all of the outstanding stock of Bridge Corporation (a calendar year taxpayer) was purchased from an unrelated party for cash by Infrastructure Corporation. On July 1, 2015, Bridge adopted a resolution providing for a plan to completely liquidate. The plan of complete liquidation provided that Bridge would be liquidated upon payment of its indebtedness to a large, publicly held lender, but in any event not later than March, 2018. Bridge’s loan agreement had been entered into...

11. On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of...

11. On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $300,000. Its current E & P for the year is $90,000 (before considering dividend distributions). During the year, Tulip distributes $600,000 ($300,000 each) to its equal shareholders, Anne and Tom. Anne has a basis in her stock of $65,000, and Tom’s basis is $120,000. What is the effect of the distribution by Tulip Corporation on Anne and Tom?

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $400,000....

On January 1, Tulip Corporation (a calendar year taxpayer) has accumulated E & P of $400,000. Its current E & P for the year is $120,000 (before considering dividend distributions). On the last day of the year, Tulip distributes $600,000 ($150,000 each) to its four equal shareholders, Anne, Andrew, Tom and Terry. Anne has a basis in her stock of $65,000, while Andrew’s basis is $120,000. Tom has a $5,000 basis in his stick while Terry has a $80,000 basis....

Q 1: On July 8, 2016, Celtic corporation, a calendar year taxpayer, purchased an apartment building...

Q 1: On July 8, 2016, Celtic corporation, a calendar year taxpayer, purchased an apartment building for $1,500,000, of which $250,000 was allocatble to the land. On September 10, 2018, Celtic sells the building. Give the corporation's allowable depreciation deductions for the apartment building both for the year of purchase (2016) and for the year of sale (2018). Q 2: In January of 201 8, Matt purchased a Mercedes sedan for $95,000 to be used in his business as a...

1. On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta...

1. On January 1, 2016, TXU Europe Corporation purchased 40% of the outstanding stock of Alberta Power Pool Corporation for $800,000. Net income reported by Alberta Power Pool Corporation for 2016 and 2017 was, respectively, $100,000 and $125,000. Dividends paid by Alberta Power Pool Corporation during 2016 and 2017 were, respectively, $60,000 and $75,000. The long−term investment will appear on TXU Europe Corporation's December 31, 2017, balance sheet at: A.$864,000 B.$836,000 C.$746,000 D.$890,000 2.Retail Energy Corporation paid $1,300,000 on January...

True or False. Taxpayer (“T”), a cash basis individual taxpayer, bought a bond for $8,760 on...

True or False. Taxpayer (“T”), a cash basis individual taxpayer, bought a bond for $8,760 on January 1, 2019, with a maturity value of $10,000 on January 1 2022 (meaning there are no scheduled payments other than the $10,000 received at maturity). Assume the yield to maturity is 4.5% on an annual basis. If the bond is a series EE government bond T will not be required to include any gross income in 2019, but if the bond is issued...

Subjects