Darlene owns 500 shares of Sandmayor, Inc., common stock that she purchased several years ago for $21,000. During the current year, the Sandmayor stock declines in value. Darlene decides to sell the stock to realize the tax loss. On December 17, she sells the 500 shares for $12,000. Her investment adviser tells her she thinks the Sandmayor stock probably will begin to increase in value next year. On this advice, Darlene purchases 600 shares of Sandmayor common stock on January 10 of the next year for $15,000. The adviser turns out to be right—Darlene sells the 600 shares in May for $22,600. Complete the bulleted statements below that explain the tax effect of the sales on Darlene's taxable income in each year. Do not round intermediate per share amounts, but round final answers to the nearest dollar.

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Explanation:

Darlene's had a loss of $9000 in December

Darlene's made a profit of $7600 in May

Explanation:

Given data;

Darlene's old shares = 500 at $21,000

Darlene's sold old shares = $12,000 December 17

Darlene's purchases new  shares = 600 at $15,000 January 10

Darlene's sold new share at $22,600 in May

The tax effect of sales on Darlene's taxable income can be determined as follows;

1. Deductible loss

2. Realized gain or loss

1. Deductible loss: Old shares

Cost price = $21,000

Selling price = $12,000

Profit = Selling price - Cost price

Profit = $12,000-$21,000

         = -$9000

Darlene's had a loss of $9000 in December

2. Realized gain or loss: new shares

Cost price price = $15,000

Selling price = $22,600

Profit = Selling price - Cost price

         = $22,600 - $15,000

         = $7600

Darlene's made a profit of $7600 in May