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:

System 1

Refers to the fast, instinctive, and emotional way of thinking proposed in Daniel Kahneman's dual-process theory of the mind.

System 2

System 2 is a concept from cognitive psychology that describes the deliberative, analytical, and conscious way of thinking, as opposed to the fast, automatic, intuitive thinking of System 1.

Package Sizes

The dimensions or volume of the container or packaging material used to encase products for distribution, sale, or storage.

Positive Outcomes

Favorable results or benefits achieved from particular actions or activities, especially in the context of decisions or policies.