On September 3, 2011, Able, a Single Individual, Purchased §

question 10

Multiple Choice

On September 3, 2011, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2011, the stock was worth $85,000.On August 15, 2012, Able was notified that the stock was worthless.How should Able report this item on his 2012 tax return?

• A)$85,000 capital loss.
• B)$85,000 ordinary loss.
• C)$50,000 ordinary loss and $35,000 capital loss.
• D)$60,000 ordinary loss.
• E)None of the above.

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Definitions:

Direct Materials

Raw materials that are directly traceable to the production of a specific product and include in its cost.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a specific activity base.

Budgeted Manufacturing Overhead

The estimated total indirect costs related to the production process, planned for a specific period.

Cost Driver

A factor that causes or relates to a change in the cost of an activity or a product, such as machine-hours, labor-hours, or material usage.