On January 5, 2011, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of

Question:

On January 5, 2011, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2011, he purchases an additional 300 shares for $19,500. On November 13, 2011, Wichmann, Inc., declares and distributes a 30% stock dividend. On December 23, 2011, Wichmann distributes a cash dividend of 50 cents per share. On February 19, 2012, Henry sells 800 shares of the Wichmann, Inc., stock for $45 per share.

a. How much income or loss does Henry recognize in 2011 and 2012 on his Wichmann, Inc. stock?

b. Explain how Henry can improve the tax results of the 2012 sale.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...