Question

4. A buys 100 shares of ABC on five different occasions. The purchases were done in the following order and for the following amounts per share.

1 – 105

2- 108

3-92

4- 116

5 – 100

A sells 300 shares for $30,150. If A gave no instructions to her broker what is A’s gain or loss on the transaction? If A instructed her broker to sell her shares with the highest basis what would her gain or loss be?

Answer 1

If A gave no instructions to her broker what is A’s gain or loss on the transaction

Occasion	Number of shares purchased	Value per share	Purchase value
1	100	105	10500
2	100	108	10800
3	100	92	9200
4	100	116	11600
5	100	100	10000
Total	500		52100

Average cost = Total purchase value / total shares = 52100/500 =104.20

Profit or loss = sale value – cost of acquisition

Sale value = 30150

Cost of acquisition = Number of shares * Average cost = 300*104.20 = 31260

Profit/(loss) = 30150-31260 = (1110)

Loss = 1110

If A instructed her broker to sell her shares with the highest basis what would her gain or loss be

Profit or loss = 30150- [11600+10800+10500] = (2750)

Loss = 2750