On May 5, 2008, Nancy sells her stock (adjusted basis of$13,000) in Lime, Inc., a publicly traded company, for $17,000. OnMay 31, 2008, she pays $20,000 for stock in Rose, Inc., aspecialized small business investment company. Nancy believes thather adjusted basis for the basis for the Rose stock is $10,000.
a. Evaluate Nancy's calculation of the adjusted basis forher Rose stock.
b. How would your answer change if Nancy purchased thereplacement stock on July 15 rather than on May 31?