Several years ago, Kurt paid $15,000 for 1,000 shares of stock in ABC. During the current year ABC declares a three-for-one stock split. Shortly thereafter, Kurt sells 1,000 shares of ABC stock for $12,000. His recognized gain on the sale of the 1,000 shares is:A. $7,000. B. $2,000. C. $0. D. $12,000. E. $5,000.

Question

Esperanza Hernandez

Business

24 February, 16:29

Several years ago, Kurt paid $15,000 for 1,000 shares of stock in ABC. During the current year ABC declares a three-for-one stock split. Shortly thereafter, Kurt sells 1,000 shares of ABC stock for $12,000. His recognized gain on the sale of the 1,000 shares is:A. $7,000. B. $2,000. C. $0. D. $12,000. E. $5,000.

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Answers (1)

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Lucian Watkins · Answer 1

A. $7,000

Explanation:

Kurt paid $15,000 for 1,000 shares.

As ABC company declares 3-for-1 stock split, the new number of shares = 1,000 * 3 = 3,000 shares.

New purchase price of each share = $15,000 : 3,000 = $5.

1,000 shares price = 1,000 * 5 = $5,000.

Kurt sells 1,000 shares for $12,000.

Therefore, recognized gain = $ (12,000 - 5,000) = $7,000.

However, because of stock split, Kurt gets high profit including an unrecognized profit too.