Mike,a Dealer in Securities and Calendar-Year Taxpayer,purchased a Security for Inventory

question 134

Multiple Choice

Mike,a dealer in securities and calendar-year taxpayer,purchased a security for inventory on November 18,2018 for $15,000.The FMV on December 31,2018 was $16,000.The security was sold on December 19,2019 for $16,500.These transactions result in

• A)$0 ordinary income in 2018; $1,500 ordinary income in 2019.
• B)$0 ordinary income in 2018; $1,500 LTCG in 2019.
• C)$1,000 ordinary income in 2018; $500 LTCG in 2019.
• D)$1,000 ordinary income in 2018; $500 ordinary income in 2019.

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Definitions:

Consumer Surplus

The gap between the price consumers are prepared to pay for a product or service and the actual amount they spend on it.

Market Price

The market rate for buying or selling an asset or service in a public trading environment.

Producer Surplus

The gap between the minimum amount sellers are prepared to accept for a product or service and the actual payment they get.

Equilibrium

The point at which the quantity of a product or service demanded by consumers equals the quantity supplied by producers, leading to a stable market condition.