Stanley Steamer Purchased 1,000 Shares of Patrick Corporation Common Stock

Essay

Stanley Steamer purchased 1,000 shares of Patrick Corporation common stock at $6 per share in 2008. On September 26, 2012, he received 1,000 nontaxable stock rights entitling him to buy 200 additional shares of Patrick Corporation common stock at $10 per share. On the day that the rights were issued, the fair market value of the stock was $12.50 per share ex-rights and that of the rights was $2.50 each. Stanley sold 500 of the rights for $1,100 on October 24, 2012, and let the other 500 rights expire.
(a.) What is the gain or loss that Stanley should report in 2012?
(b.) What gain or loss should Stanley report if the value of the rights were $1.25 instead of $2.50?