Thrasher Corporation sells short 400 shares of ARC stock at $312 per share on Ja

Question

Thrasher Corporation sells short 400 shares of ARC stock at $312 per share on January 15, 2017. It buys 800 shares of ARC stock on April 1, 2017, at $390 per share. On May 2, 2017, Thrasher closes the short sale by delivering 400 of the shares purchased on April 1.

a. What are the amount and nature of the loss upon closing the short sale?

Thrasher has a short-term capital loss in the amount of $.???

b. When does the holding period for the remaining shares begin?

The holding period for the remaining shares begins on May 2 .

c. If Thrasher sells (at $429 per share) the remaining 400 shares on January 20, 2018, what will be the nature of its gain or loss?

Thrasher has a short-term capital gain in the amount of $.???

Explanation / Answer

Solution:

a) Determining the Amount and Nature of the Loss Upon Closing the Short Sale:

After Making the Short Sale Thrasher, it Lost ($390 - $315) = $78 Per Share for a Total of ($78 * 400 Shares) $31,200 Short Term Capital Loss From closing the Short Sale.

Therefore, Thrasher has a short-term capital  loss in the amount of $31,200.

b) Determining the Holding Period for the Remaining Shares Begin:

The Holding Period will begins with the Closing Date of Short Sale for the Remaining 400 Shares and the Date is May 2, 2017. The Remaining Shares were Acquired after the Short Sale Date of January 15, 2017. They have the Holding Period with the Earlier of the Closing Date of the Short Sale.

The Holding Period for the remaining shares begins on May 2, 2017.

c) Determining the Nature of Gain or Loss:

When Thrasher Sells the Remaining Shares on Janaury 20, 2018, they will have a Gain of $39 Per Share, Total of Gain is $15,600. This Gain is Short term because the Holding Period didn't Start Upto the Short Sale Closing Date (May 2, 2017). For Receving the Long Term Gain on Shares Thrasher have to Hold the Stock for more than One Year.

Therefore, Thrasher has a short-term capital gain  in the amount of $15,600.

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