Rudy bought 10 shares of Fat Cat, Inc. stock on January 1, Year 1. Rudy paid $20

Question

Rudy bought 10 shares of Fat Cat, Inc. stock on January 1, Year 1. Rudy paid $20 for each share. At first, it appeared that Rudy had made a good investment, as the price of Fat Cat stock rose to $50 per share on March 1, Year 1. However, rumors of corporate wrongdoing soon started to circulate and the price of Fat Cat began to fall. On August 1, Year 1, Fat Cat, Inc. declared bankruptcy and announced that the stockholders should not expect to receive anything on the liquidation of the corporation. What type of loss does Rudy have in Year 1, if any?

A) Rudy does not have a loss because he did not sell the stock.

B) Short-term capital loss of $200

C) Short-term capital loss of $500

D) Long-term capital loss of $200

Explanation / Answer

ans B : short term capital loss of $200

explanation

Jan 1   purchased 10 shares at $20 .,=$200

august 1 sold 10 shares at $0      =$0

difference between purchase price and sales proceeds gives a loss of $200. Loss is short term since shares are sold within a year

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