Question

Problem 7-42 (LO 7-2) [The following information applies to the questions displayed below.] Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of Microsoft common stock over the years: Date Purchased Shares Basis 7/10/2009 430 $ 14,190 4/20/2010 330 12,804 1/29/2011 530 14,098 11/02/2013 280 9,016 If Dahlia sells 890 shares of Microsoft for $47,170 on December 20, 2019, what is her capital gain or loss in each of the following assumptions? (Do not round intermediate calculations.) Problem 7-42 Part-b b. She uses the specific identification method and she wants to minimize her current year capital gain.

Answer 1

Cost of shares purchased in 2009 = Basis / Shares = $14190 / 430 = $33 per share

Cost of shares purchased in 2010 = Basis / Shares = $12804 / 330 = $38.8 per share

Cost of shares purchased in 2011 = Basis / Shares = $14098 / 530 = $26.6 per share

Cost of shares purchased in 2013 = Basis / Shares = $9016 / 280 = $32.2 per share

To minimize her capital gain, Dahlia should specifically identify the 330 shares purchased in 2010, then the 430 shares purchased in 2009 and then 130 of the shares purchased in 2013.

Under the specific identification method:

330 shares purchased in 2010	$12804
430 shares purchased in 2009	$14190
130 shares purchased in 2013(130/280 X $9016)	$4186 basis
Total basis	$31180

Capital gain = Sales proceeds - tax basis of the shares sold

Capital gain = $47170 - $31180

Capital gain = $15990