On June 1,2015,Brady Purchased an Option to Buy 1,000 Shares

question 48

Multiple Choice

On June 1,2015,Brady purchased an option to buy 1,000 shares of General,Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brady decided to let the option lapse as of December 1,2015.On his 2015 tax return,what should Brady report?

• A)A $3,000 long-term capital loss.
• B)A $3,000 short-term capital loss.
• C)A $3,000 § 1231 loss.
• D)A $3,000 ordinary loss.
• E)None of the above.

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Definitions:

Fixed Costs

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

Margin Of Safety

The difference between actual or expected sales and the break-even point, indicating the level of risk in failing to cover fixed costs.

Breakeven

The point at which total costs and total revenue are equal, resulting in no net loss or gain.

Sales

The exchange of a commodity or service for money; the action of selling something.