Homework Answers
| No. of shares | Cost Rate/share | Cost | Fair Value Rate/ share | Fair Value | |
| Common Stock | 5,000 | 6 | 30,000 | 9 | 45,000 |
| Preferred Stock | 250 | - | - | 12 | 3,000 |
| Total | 5,250 | 30,000 | 48,000 |
The cost rate of preferred stock is NIL as it is received as preferred stock dividend (5000 shares * 5% = 250 preferred stock).
However, for calculating cost per basis cost should be allocated to preferred stock as well using weighted average cost.
| No. of shares | Cost | Fair Value | Gain | |
| Common Stock | 5,000 | 28,571 | 45,000 | 16,429 |
| Preferred Stock | 250 | 1,429 | 3,000 | 1,571 |
| Total | 5,250 | 30,000 | 48,000 | 18,000 |
Cost = 5000/5250*30000 = 28571 and 250/5250*30000 = 1429
Taxable income Kevin should recognize is $ 18000
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