Question

Problem 8-2 (Algorithmic)
What is a Capital Asset?, Holding Period, and Calculation of Gain or Loss, Net Capital Gains (LO 8.1, 8.2, 8.3)

During 2017, Tom sold Sears stock for $17,800. The stock was purchased 4 years ago for $24,920. Tom also sold Ford Motor Company bonds for $62,300. The bonds were purchased 2 months ago for $52,955. Home Depot stock, purchased 2 years ago for $1,780, was sold by Tom for $2,670.

Calculate Tom's net gain or loss, and indicate the nature of the gain or loss.

$------------------? Net short-term capital gain.

Answer 1

Ans- Capital Asset:-

Capital asset is a type of property which is owned by business owner for investment purpose not for sale in the business life.

Capital assets include land,building, car, machine ,computer and major equipments.

Calculating Tom's net gain or loss:

Particulars	Calculation	Amount	Nature of Gain/Loss
Sears stock	$17,800-$24,920	$7,120	Long term capital loss
Home Depot stock	$2,670-$1,780	$890	Long term capital gain
A- Net Long Term Capital Loss	$7,120-$890	$6,230
Ford Motor Company	$62,300-$52,955	$9,345	Short term capital gain
B-Short Term Capital Gain		$9,345

Net short-term capital gain =$9,345-$6,230

=$3,115

Explabation- The Net Long Term Capital Loss of $ 6,230 is offset by net short term capital gain of $9,345 resulting into Net short term capital gain of $3,115.

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