Reference no: EM131050424

Shaggy owns a record shop. He sells classic, vintage vinyl records to the public mostly to collectors. Most of Shaggy’s inventory is just old album collections he picks up for bargain prices at estate sales. Many of the items in Shaggy’s inventory are worth little and he sells them “as is”, which means that if the records are scratched or wrapped, the customer may not return them for a refund and they know the risk at the time of purchase. Some items are rare or high demand titles that Shaggy tests and guarantees the quality of, so he can charge a higher price. In June of 2013, Shaggy found the 1958 Johnny Coltrane album “Blue train” mixed in with a box of 25 old records he bought for $5 at a gargle sale. Knowing that this one album could command approximately $2,000 at auction, Shaggy had it professionally polished and restored, paying $150 for the service. He added a banner to his website announcing the arrival of this album in his store, and this worked to bring in to see it. Shaggy sold the album at the auction for $2,500. The cost to list it at auction was 10% of he highest bid or $250. Discuss these issues: Is the album a capital asset? Why or why not What is Shaggy’s basis? What is Shaggy’s realized gain? What is the character of Shaggy’s gain?