In 2018, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest year-end dividends in additional shares. In 2018 and 2019, she received Form 1099s reporting the following. $\begin{array}{rrrrr}
&\text { Reinvested } & \text { Shares } & \text { Price per } & \text { Total shares } \
&\text { dividends } & \text { purchased } & \text { share } & \text { owned }\
2018 & \$ 4,800 & 240 & \$ 20 & 3,240 \
2019 & \$ 3,150 & 150 & \$ 21 & 3,390
\end{array}$
If Mrs. Owens sells 1,000 of her 3,390 shares in 2020 for $22 per share and uses the average basis method, compute her recognized gain.

Question

In 2018, Mrs. Owens paid $50,000 for 3,000 shares of a mutual fund and elected to reinvest year-end dividends in additional shares. In 2018 and 2019, she received Form 1099s reporting the following. $\begin{array}{rrrrr}
&\text { Reinvested } & \text { Shares } & \text { Price per } & \text { Total shares } \
&\text { dividends } & \text { purchased } & \text { share } & \text { owned }\
2018 & \$ 4,800 & 240 & \$ 20 & 3,240 \
2019 & \$ 3,150 & 150 & \$ 21 & 3,390
\end{array}$
 If Mrs. Owens sells 1,000 of her 3,390 shares in 2020 for $22 per share and uses the average basis method, compute her recognized gain.

Quizplus · Accepted Answer

The average basis per share is calculated by dividing the total cost by the total number of shares owned. Total cost = $50,000 + $4,800 + $3,150 = $57,950. Total shares = 3,390. Average basis per share = $57,950 / 3,390 = $17.09. Selling price per share = $22. Gain per share = $22 - $17.09 = $4.91. Recognized gain for 1,000 shares = 1,000 * $4.91 = $4,910.

In 2018, Mrs If Mrs Owens Sells 1,000 of Her 3,390 Shares in 2020