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Character of Loss. The Michigan Corporation owns 20 % of the
Wolverine Corporation. The Wolverine stock was acquired eight years ago to
ensure a steady supply of raw materials. Michigan also owns 30 % of Spartan
Corporation and 85 % of Huron Corporation. Stock in both corporations was
acquired more than ten years ago for investment purposes. During the current
year, Wolverine, Spartan, and Huron are deemed bankrupt, and the stocks are
considered worthless. Describe how Michigan should treat its losses.

Original Issue Discount . On December 31, 2018, Phil
purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The
bonds are dated December 31, 2018. The bonds are 9%, 10-year bonds paying
interest semiannually on June 30 and December 31. The bonds are priced to yield
12% compounded semiannually.
a. What is the amount of the original issue discount?
b. For the first semiannual period, what is the amount of
the original issue discount Phil must recognize as ordinary income?
c. What is the total amount of interest income Phil must
recognize in 2019?
d. What is Phil’s basis for the bonds as of December 31,
2019?

On January 1, 2017, Swen paid $184,000 for $200,000 of the
8%, 20-year bonds of Penn Corporation, issued on January 1, 2013, at par. The
bonds are held as an investment. Determine the gain and the character of the
gain if the bonds are sold on January 1, 2019, for
a. $191,000
b. $185,750
C. $183,000

Capital Gains and Losses. During 2019, Gary receives a
$90,000 salary and has no deductions for AGL In 2018, Gary had a $5,000 STCL
and no ocher capita l losses or capita l gains. Consider the following sales
and determine Gary’s AGI for 2019.
• An automobile purchased in 2014 for $20,500 and held for
personal use is sold for $7,000.
• On April 10, 2019, stock held for investment is sold for
$21,000. The stock was acquired on November 20, 2018, for $9,300.

Call Options. On February 10, 2019, Gail purchases 20 calls
on Red Corporation for $250 per call. Each call represents an option ro buy 100
shares of Red stock at $42 per share any time before November 25, 2019. Compute
the gain or loss recognized, and determine whether the gain or loss is
long-term or short-term for Gail in the following situations:
a. The 20 calls are sold on May 15, 2019, for $310 per call.
b. The calls are nor exercised but allowed to expire.
c. The calls are exercised on July 15, 2019, and the 2,000
shares of Red Corporation stock are sold on July 20, 2020, for $50 per share.

Call Writing . Dan owns 500 shares of Rocker Corporation
common stock. The stock was acquired two years ago for $30 per share. On
October 2, 2019, Dan writes five calls on the stock, which represent options to
buy the 500 shares of Rocket at $75 per share. For each call, Dan receives
$210. The calls expire on June 22, 2020. Consider the following transactions
and describe the tax treatment for Dan:
a. The five calls are exercised on December 4, 2019.
b. The calls are nor exercised and allowed to expire.