This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, 7, 62, 65, 66, and 82. –ANSWER POSTED– Continue reading
This week’s study question from the Solomon Online Exam Simulator question database is now available.
Question (Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, and Series 82):
Ross receives 50 shares of ABC Co. as a gift, then later inherits an additional 50 shares of ABC Co. The shares were all originally purchased at $10/share. When Ross receives the shares as a gift, they are worth $20/share. When Ross inherits the shares, they are worth $30/share. When Ross eventually all sells the shares, they are worth $50/share. What is Ross’s total cost basis when he sells the shares?
Correct Answer: B. $2,000
Rationale: Inherited shares received a stepped up cost basis based on their market value at the time of the prior owner’s death. Shares received as a gift maintain their original cost basis. So the cost basis of the inherited shares is $1,500 ($30/share * 50 shares) while the cost basis of the gifted shares is $500 ($10/share * 50 shares). Adding them together gives a total cost basis of $2,000.
Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.
Effective January 1, 2011, the IRS requires that when broker-dealers and mutual funds purchase stocks, the cost basis of the stocks must be reported to Continue reading
Effective January 1, 2011, the IRS requires that when broker-dealers and mutual funds purchase stocks, the cost basis of the stocks must be reported to the IRS and to investors. In 2011, this reporting requirement only applies to most stocks, while in 2012 and beyond, the requirement will apply to all stocks. In 2011, the rule will not apply to mutual fund shares and shares purchased via dividend reinvestment plans. Relevant to the Series 6, Series 7, Series 62, Series 65, and Series 66 exams.
IRS news release: http://www.irs.gov/newsroom/article/0,,id=228907,00.html
Analysis by the Securities Technology Monitor: http://www.securitiestechnologymonitor.com/photo_gallery/1_36/27400-1.html