Question

5 years ago, Grady and his brother Alex formed Langley Corp., a golf apparel manufacturing corporation....

5 years ago, Grady and his brother Alex formed Langley Corp., a golf apparel manufacturing corporation. At the time, Grady contributed $330,000 to the corporation in exchange for 70% of its stock. During the current tear, Grady needed some cash to purchase a golf course so he sold a third of his interest in Langley Corp. for $84,000. He also sold stock in the following companies for the amounts indicated:

Corporation

Sales Proceeds

Adjusted Basis

When Acquired

IBM

$19,000

$11,000

52 months ago

Microsoft

29,000

46,000

18 months ago

Tidal Radio

40,000

18,000

7 months ago

Wavetable

25,000

35,000

4 months ago

During the year Grady hired a collection agency to collect a $12,000 loan he made to an old​friend, which was due in full on January 1 of the current year. The agency found no trace of his friend. Also during the​year, NBO Corporation, in which he owns​stock, went bankrupt. His investment was worth $97,000 on January 1st, he purchased it six years ago for $104,000, and he expects to receive only $5,000 in redemption of his stock.​ Finally, Grady's salary for the year was $124,000 for his work as an associate professor.

short term gain (loss)

long term gain (loss)

ordinary income (loss)

Langley Corp

IBM

Microsoft

Tidal Radio

Wavetable

Defaulted loan

NBO Corporation

Salary

Net

0 0
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Answer #1
Short term Gain (loss) Long term Gain (loss) Ordinary Income (loss)
Langley corp - 84000-(330000/3);(26000) -

IBM

- 11000-19000; (8000) -

Microsoft

- 29000-46000; (17000) -

Tidal Radio

40000-18000; 22000 - -

Wavetable

25000-35000; (10000) - -

Defaulted loan

(12000) - -

NBO Corporation

- - -

Salary

- - 124000

Net

0 (51000) 124000

Notes:

1.) Investments sold within one year are classified as short term capital gain (loss).

2.) Investments sold later than one year are classified as long term gain (loss).

3.) Personal loan given to old friend defaulted is to be classified as short term loss.

4.) NBO corporation stock is not sold and is not worthless because the investor is expecting some consideration on its redemption so it can't be taxed or written off now.

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