Santana purchased 200 shares of Neffer, Inc. Common Stock on November 13, 2017, for $3,400 and paid a $200 commission. On December 28, 2017, Santana received a $2 per share cash dividend from Neffer. On June 17, 2018, Neffer declares and distributes a 2 for 1 stock split. On August 4, 2018, Santana purchased an additional 300 shares of Neffer, Inc. Common Stock for $4,200 plus a $300 commission. On November 22, 2018, Santana sells 500 shares of Neffer, Inc. stock for $6,000 and pays a $400 commission on the sale. Santana's gain (loss) on the sale is

Question

Quizplus · Accepted Answer

First, let's calculate Santana's cost basis for the 500 shares sold on November 22, 2018:

- The 200 original shares purchased on November 13, 2017, for $3,400 + $200 commission = $3,600
- The 300 additional shares purchased on August 4, 2018, for $4,200 + $300 commission = $4,500
- Total cost basis = $3,600 + $4,500 = $8,100
- Cost basis per share = $8,100 / 500 shares = $16.20

Now, let's calculate Santana's proceeds from the sale:

- 500 shares sold for $6,000 - $400 commission = $5,600
- Proceeds per share = $5,600 / 500 shares = $11.20

Santana's gain (loss) per share = $11.20 - $16.20 = -$5.00

Therefore, Santana's total gain (loss) on the sale is:

- 500 shares x (-$5.00) = -$2,500
- However, Santana received a $2 per share cash dividend, so that reduces the loss to -$1,500
- Santana also benefited from the 2 for 1 stock split, which doubled the number of shares owned and halved the cost basis per share. This doesn't affect the gain (loss) per share on the sale, but it does increase the original cost basis per share to $18.00 ($16.20 / 0.9).
- Santana's gain (loss) on the sale is a $1,500 loss, which is a $500 gain compared to the total cost basis of $8,100. Therefore, the answer is B) $500 gain.

Santana Purchased 200 Shares of Neffer, Inc