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:

Heat of Fusion

The amount of heat required to convert a solid at its melting point into a liquid without changing its temperature.

Homeostasis

The regulatory process by which biological systems maintain a stable internal environment despite external changes.

Vaporization

The phase transition of a substance from a liquid to a gas, occurring through the processes of evaporation or boiling.

Calorie

The amount of heat energy required to raise the temperature of 1 g of water 1°C; equivalent to 4.184 joules. Compare with Kilocalorie.