Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1994 when he acquired 30 shares for $20 a share. In 2001, Alfred bought 150 shares at $10 a share. In 2016, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per share in the current year (2017). If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?
A)$1,250
B)$3,520
C)$5,950
D)$6,250
E)None of the above

Question

Quizplus · Accepted Answer

To minimize gain, Alfred should sell the shares with the highest cost basis. He should sell 125 shares from the 200 shares purchased in 2016 at $50 each. The cost basis for these shares is $50 x 125 = $6,250. The sale proceeds are $60 x 125 = $7,500. The recognized gain is $7,500 - $6,250 = $1,250.

Over the Past 20 Years, Alfred Has Purchased 380 Shares