Edward purchased stock last year as follows: In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is
A)$160.
B)$184.
C)$216.
D)$240.

Question

Edward purchased stock last year as follows:  In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is
A)$160. 
B)$184. 
C)$216. 
D)$240.

Quizplus · Accepted Answer

Since Edward cannot specifically identify the stock sold, he must use the First-In First-Out (FIFO) method to determine the basis of the shares sold. 
According to the FIFO method, the first 80 shares purchased are considered sold first. 
Therefore, the basis for the 80 shares sold is calculated as follows: 
- Edward purchased 11 shares at a cost of $6 each, for a total of 11 x $6 = $66. 
- Edward purchased 5 shares at a cost of $8 each, for a total of 5 x $8 = $40. 
- Edward purchased 6 shares at a cost of $12 each, for a total of 6 x $12 = $72. 
- Edward purchased 58 shares at a cost of $10 each, for a total of 58 x $10 = $580. 
The total cost of all shares purchased is $66 + $40 + $72 + $580 = $758. 
Since Edward sold 80 shares, the portion of the total cost allocated to those shares is: 
- ($758 / 80 shares) x 80 shares sold = $758. 
Therefore, the basis for the 80 shares sold is $758, which is $9.475 per share. 
When Edward sells the 80 shares for $250, he has a realized gain of $250 - ($9.475 x 80) = $250 - $758 = -$508. 
Since the realized gain is negative, Edward has a realized loss on the sale of these shares.

Edward Purchased Stock Last Year as Follows: in April