Guerda owns 1,500 shares of Ditchdirt common stock. During the current year, she sells 500 shares of the stock for $15 per share and pays a commission of $300 on the sale. Guerda had purchased the 1,500 shares as follows:
Purchase Purchase Commissions Cost
Date # of Shares Price Paid Per Share
1/18/05 200 $ 1,600 $ 200 $ 9
5/12/05 100 1,100 100 $12
9/11/05 300 3,000 300 $11
2/15/06 400 5,500 500 $15
12/31/06 500 2,700 300 $ 6
What is Guerda’s gain or loss on the sale of the stock?
Absent specific identification of the shares sold, the basis of the shares is determined on a FIFO basis. Therefore, the first step is to calculate the cost per share for each date Guerda purchased the Ditchdirt stock.
1/18/05 – $1,600 + $200 = $1,800 ¸ 200 = $ 9 per share
5/12/05 – $1,100 + $100 = $1,200 ¸ 100 = $12 per share
9/11/05 – $3,000 + $300 = $3,300 ¸ 300 = $11 per share
2/15/06 – $5,500 + $500 = $6,000 ¸ 400 = $15 per share
12/31/06 – $2,700 + $300 = $3,000 ¸ 500 = $ 6 per share
The basis of the first 500 shares purchased are used to calculate gain (loss) on the sale:
Basis of first 500 shares purchased:
1/18/05 purchase (200 Shares x $ 9) $ 1,800
5/12/05 purchase (100 Shares x $12) 1,200
9/11/05 purchase (200 Shares x $11) 2,200
Total basis of 500 shares $ 5,200
Calculation of Gain on Sale:
Amount realized [(500 x $15) – $300] $ 7,200
Adjusted basis of shares sold (5,200)
Gain on sale $ 2,000
