Which of the following statements are TRUE?
I. accrued interest is added to the buyer's confirmation
II. accrued interest is added to the seller's confirmation
III. accrued interest is included in the buyer's cost basis
IV. accrued interest is included in
accrued interest is added to the buyer's confirmation
accrued interest is added to the seller's confirmation
A customer has purchased 5,000 shares of ABC Corporation stock in lots of 100 shares over an extended period of time at varying prices. The customer now sells 500 of the shares. Which statement is TRUE?
a. IRS rules require that First In First Out account
IRS rules allow the taxpayer to specify which shares being sold
A customer buys $10,000 of a new issue 10 year corporate bond at 92. At maturity, the customer will have:
a. no capital gain or loss
b. an $80 capital gain
c. an $800 capital gain
d. an $800 capital loss
no capital gain or loss
In January, 20XX a customer buys 100 shares of ABC stock at $50 per share and pays a $2 commission per share. The customer receives $2 in cash dividends during the year. The customer's cost basis in the stock is:
a. $48 per share
b. $50 per share
c. $52 p
$52 per share
A customer has invested $100,000 in a CMO. In the first year, the customer receives $12,000 of payments, which consist of $9,000 of interest and $3,000 of principal. Which statement is TRUE?
a. all $12,000 received is taxable
b. all $12,000 received is no
the $3,000 of principal is not taxable and the $9,000 of interest is taxable
A customer buys a NASDAQ stock in a principal transaction at $79 plus a $1 mark-up. Which statements are TRUE?
I. The cost basis for tax purposes is $79 per share
II. The cost basis for tax purposes is $80 per share
III. The trade will be reported to the
The cost basis for tax purposes is $80 per share The trade will be reported to the tape at $79 per share
For tax purposes, any commissions or mark-ups charged to buy stock are considered to be part of the cost basis (therefore, they are not deductible). T
A corporation declares a dividend of $3.00 on Tuesday, December 6th. The record date is set at Friday, December 30th, with the dividend payable on January 6th. Based on this information, the ex date is set at December 28th. For the recipient of the divide
January 6th
For tax purposes, payments by issuers to securities holders are considered to be received as of the date the issuer sends the check. In this case, the check is sent on January 6th (payable date), therefore the income is taxable as of this date
Which of the following is (are) taxable in the year of receipt?
I. Interest earned from investments
II. Cash dividends from investments
III. Stock dividends from investments
Interest earned from investments
Cash dividends from investments
Cash dividends and interest are taxable each year (unless the interest is exempt). Stock dividends and stock splits are treated as a "return of capital." The cost basis of the shares is redu
A customer has purchased 1,000 shares of ABC stock at $30 per share, paying a commission of $1 per share for the transaction. ABC stock declares a 5% stock dividend. When the dividend is paid, the tax status of the investment is:
A. 1,000 shares held at a
1,050 shares held at a cost basis of $29.52 per share
There is no tax due when a stock dividend is paid; instead the investor gets more shares; with each share worth proportionately less. The payment of a stock dividend increases the number of shares held
Two years ago, a customer purchased 1,000 shares of ABC stock at $45 per share. The stock has appreciated in value and is currently worth $60,000. The company announces that it is spinning off a subsidiary, DEF, to its shareholders. The value of the new c
$42,750 cost basis in ABC; $2,250 cost basis in DEF
The aggregate cost basis does not change in a spin-off. The original investment in ABC stock had a cost basis of $45,000. The 5% spin off means that 5% of this value is now attributed to the newly spun-o
Which of the following is reported on Form 1099-DIV?
A. Cash dividends
B. Taxable interest
C. Tax-free interest
D. All of the above
Cash dividends
Form 1099-DIV is the report to the IRS by issuers of cash dividends paid and capital gains distributions made by mutual funds. Interest paid on taxable bonds and tax-free bonds is reported on Form 1099-INT.
Which statements are TRUE about stock cost basis reporting?
I. Stock cost basis is reported on Form 1099-DIV
II. Stock cost basis is reported on Form 1099-B
III. If there are multiple purchases of the stock and no instructions are received from the custom
Stock cost basis is reported on Form 1099-B
If there are multiple purchases of the stock and no instructions are received from the customer, cost basis is reported on a FIFO basis
Cost basis reporting to the IRS is required on Form 1099-B. The Form includ
Under IRS rules, if a customer selling shares of stock wishes to use specific identification instead of FIFO for cost basis reporting, the broker-dealer effecting the trade must be notified of this no later than:
A. Trade date
B. Settlement date
C. Decemb
Settlement date
If a customer says nothing at the time of a stock sale, IRS rules requires that FIFO be used to determine which shares are sold. If the customer wishes to use specific identification instead, this must be chosen by the customer no later th
A customer buys 10M of $1,000 par corporate bonds in the secondary market. The purchase confirmation shows that the customer paid 90 + $150 of accrued interest. Six months later, the customer sells the bonds in the market at 91 + $50 of accrued interest.
$100 capital gain
The accrued interest on a bond has no bearing on the capital gain or loss that results from the liquidation of a position. Rather, the accrued interest is an adjustment to interest income paid or received for that tax year. These bonds w
On Monday, June 7th, 2017, a customer buys 5 XYZZ 9 3/8% subordinated debentures M' 8-01-37 at 89 5/8 plus accrued interest in a regular way trade. On January 13th, 2018, the customer sells the bonds at 90 3/8 plus accrued interest in a regular way trade.
$66.41
For tax purposes, interest is reported as it is received on a cash basis. Thus, only interest payments actually made by the issuer in tax year 2017 are included. The customer bought the bonds on Monday, June 7th, 2017. The customer receives the Aug
When accreting an original issue discount bond, which of the following statements are TRUE?
I. The bond's cost basis increases proportionately each year
II. The bond's cost basis decreases proportionately each year
III. If the bond is held to maturity, th
The bond's cost basis increases proportionately each year
If the bond is held to maturity, there is no capital gain
When accreting an original issue discount bond, every year the portion of the discount is included as taxable interest income and the bond'
Which statements are TRUE about amortization of bond premiums?
I. Annual amortization amounts reduce reported interest income
II. Annual amortization amounts reduce the interest amount received from the issuer
III. Annual amortization amounts reduce the b
Annual amortization amounts reduce reported interest income
Annual amortization amounts reduce the bond's cost basis
Amortization of bond premiums reduces reported interest income each year, but it does not represent a cash loss, since the issuer pays the
When amortizing a bond premium, which of the following statements are TRUE?
I. The bond's cost basis is increased each year
II. The bond's cost basis is reduced each year
III. Any potential gain of the sale of the bond increases each year
IV. Any potentia
The bond's cost basis is reduced each year
Any potential gain of the sale of the bond increases each year
Each year, the amortization amount reduces the bond's cost basis. As the cost basis is reduced, potential capital gains on sale increase (capital gai
Regarding corporate discount bonds, which statements are TRUE?
I. Corporate original issue discount bonds must be accreted
II. Corporate original issue discount bonds may be accreted
III. Corporate market discount bonds must be accreted
IV. Corporate mark
Corporate original issue discount bonds must be accreted
Corporate market discount bonds may be accreted
The discount on original issue discount corporate and government bonds must be accreted annually - with the accretion amount being taxable annual inte
The discount on original issue discount corporate and government bonds:
A. must be amortized annually
B. may be amortized annually
C. must be accreted annually
D. may be accreted annually
must be accreted annually
The discount on original issue discount corporate and government bonds must be accreted annually. The annual accretion amount is reported as taxable interest income for that year; and increases the bond's cost basis. If the bond
Which of the following statements are TRUE for an original issue corporate bond purchased at a discount?
I. If the bond is held to maturity, the customer has capital gains tax liability
II. If the bond is held to maturity, the customer will have no capita
If the bond is held to maturity, the customer will have no capital gains tax liability
At maturity, the bonds will be redeemed at par
The discount on original issue discount corporate and government bonds must be accreted annually. The annual accretion am
All of the following are true regarding corporate bonds which are purchased in the secondary market at a discount and accreted EXCEPT:
A. the interest income is subject to Federal Income tax
B. the interest income is subject to State and Local tax
C. if t
if the bond is held to maturity, there is a taxable capital gain which is taxed as ordinary income
Corporate bonds bought in the secondary market at a discount are termed "market discount bonds." There is an option of accreting the discount and paying tax
Which of the following statements are TRUE regarding corporate bonds purchased in the secondary market at a discount?
I. The discount must be accreted
II. The discount may be accreted
III. The discount may be taxed as a long term capital gain if held for
The discount may be accreted
The discount will be taxed as ordinary income
Corporate bonds bought in the secondary market at a discount are termed "market discount bonds." There is an option of accreting the discount and paying tax annually on the accreti
A customer buys $100,000 of 30 year corporate bonds with 20 years remaining to maturity at 95. The customer elects not to accrete the discount annually. At maturity, the customer will have:
A. no capital gain or loss
B. a $5,000 taxable capital gain
C. $5
$5,000 of taxable interest income
Corporate bonds bought in the secondary market at a discount are termed "market discount bonds." There is an option of accreting the discount and paying tax annually on the accretion amount at full tax rates; or of waitin
The premium on market premium corporate and government bonds:
A. must be amortized annually
B. may be amortized annually
C. must be accreted annually
D. may be accreted annually
may be amortized annually
Corporate and government bonds bought at a premium (either new issue or those trading in the secondary market) are treated the same way. There is an option of amortizing the premium annually, reducing both taxable interest income
In 2017, a customer buys a 3 3/4% U.S. Government bond maturing in 2026 at 104-16. The customer elects to amortize the bond premium for tax purposes. If the bond is sold after 2 years, its cost basis at that time is:
A. 104-16
B. 104
C. 103-16
D. 103
103-16
Both Government and corporate bond market premiums may be amortized, if elected by the owner - and this is the best choice for the owner because the annual amortization reduces the taxable interest income received from the bond. This Government bon