In January, Lance Sold Stock with a Cost Basis of $26,000

question 107

Multiple Choice

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

• A) Disallowed loss to James of $2,000? gain to Lance of $1,000.
• B) Disallowed loss to Lance of $2,000? gain to James of $3,000.
• C) Deductible loss to Lance of $2,000? gain to James of $3,000.
• D) Disallowed loss to Lance of $2,000? gain to James of $1,000.
• E) None of the above.

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Definitions:

Adam Smith

Adam Smith was an 18th-century Scottish economist and philosopher, best known for his works on the principles of free market capitalism, particularly as outlined in "The Wealth of Nations."

Henry Ford

An American industrialist and founder of the Ford Motor Company, notable for pioneering mass production techniques like the assembly line.

Pin Factory

An example used by Adam Smith to describe the benefits of division of labor and specialization in increasing production efficiency.

Automobile Assembly

The process of putting together the various parts of cars or other vehicles.