In 1996, Mr

question 71

Multiple Choice

In 1996, Mr. Exton, a single taxpayer, contributed $30,000 in exchange for 100 shares of Morton stock. In 2005, he paid $43,000 to another shareholder to purchase 100 more shares of Morton stock. Morton stock qualified as Section 1244 stock when it was issued. This year, Mr. Exton sold his 200 Morton shares for $250 per share. What is the amount and character of Mr. Exton's recognized loss?

• A) $23,000 ordinary loss
• B) $23,000 long-term capital loss
• C) $3,000 long-term capital gain and $30,000 ordinary loss
• D) $5,000 ordinary loss and $18,000 long-term capital loss.

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Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained rather than distributed to shareholders or used to pay dividends, often reinvested into the business.

GAAP

Generally Accepted Accounting Principles represent the customary set of rules for financial accounting that are utilized in a particular jurisdiction.

Principles-based Approach

A method of regulation that emphasizes the spirit of the laws and principles behind them, rather than rigid adherence to specific rules.