Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $10,000 in cash. Second, it could give stock it initially purchased two years ago for $8,000 but is now worth $12,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?
A) Cash Stock Inventory.
B) Stock Cash Inventory.
C) Inventory Stock Cash.
D) Inventory Cash Stock.

Question

Canny Foods Co. is considering three ways it could contribute to a local, qualified charity. First, it could give $10,000 in cash. Second, it could give stock it initially purchased two years ago for $8,000 but is now worth $12,000. Third, it could give items of inventory with a fair market value of $7,000 but with an adjusted basis of $3,000. Which of the following correctly describes the relation among possible charitable contributions in terms of amount deductible for tax purposes?
A) Cash > Stock > Inventory.
B) Stock > Cash > Inventory.
C) Inventory > Stock > Cash.
D) Inventory > Cash > Stock.

Quizplus · Accepted Answer

Canny Foods can deduct $12,000 of the stock contribution (the fair market value of long-term capital gain property), $10,000 of the cash, and $3,000 of the inventory contribution (the adjusted basis of ordinary property). Certain contributions of inventory are eligible for an enhanced deduction of the lesser of twice basis ($6,000) or basis plus one-half of the appreciation in the inventory ($5,000).