Rob Sells Stock with a Cost of $3,000 to His

question 10

Multiple Choice

Rob sells stock with a cost of $3,000 to his daughter for $2,200, which is its fair market value. Later the daughter sells the stock for $3,200 to an unrelated party. Which of the following describes the tax treatment to Rob and Daughter?

• A) \[\begin{array} { | l | l | }
• \hline \text { Rob } & \text { Daughter } \\
• \hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 1,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline \text { Rob } & \text { Daughter } \\
• \hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 200 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { Rob } & \text { Daughter } \\
• \hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 1,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { Rob } & \text { Daughter } \\
• \hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 200 \\
• \hline
• \end{array}\]

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Definitions:

Monopolistically Competitive Firm

A company that operates in a market with many competitors, each offering products that are similar but not perfect substitutes, allowing for some degree of market power in setting prices.

Market Price

The present cost at which a service or asset is available for purchase or sale.

P > MC

Indicates a situation where the price (P) of a good is greater than the marginal cost (MC) of producing it, suggesting the potential for economic profits.

Short Run

A time period in economics during which at least one factor of production is fixed, limiting the ability of the business to adjust to market changes fully.