Brenda sold investment land for $200,000 in June. Her basis in the land was $75,000. The purchaser paid Brenda $40,000 cash and gave her his 5-year, interest-bearing note for the $160,000 remaining contract price. In December, Brenda received a $20,000 principle payment on the note. Brenda's recognized gain this year is:a. $22,500 b. $37,500 c. $125,000 d. $60,000

Question

Karla Armstrong

Business

21 March, 19:43

Brenda sold investment land for $200,000 in June. Her basis in the land was $75,000. The purchaser paid Brenda $40,000 cash and gave her his 5-year, interest-bearing note for the $160,000 remaining contract price. In December, Brenda received a $20,000 principle payment on the note. Brenda's recognized gain this year is:a. $22,500 b. $37,500 c. $125,000 d. $60,000

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Lewis Friedman · Answer 1

b. $37,500

Explanation:

a. Realized gain = (cash down payment + Purchase Note) - Adjusted Tax basis

= (40000 + 160000) - 75000

= 200000 - 75000

= 125000$

Gross profit percentage = profit / sales

=125000 / (40000 + 160000)

=125000 / 200000

=62.5%

year 1 Realised gain = downpayment * 62.5%

= 400000 * 62.5%

=25,000$

Realised gain = installment payment * 62.5%

= 20000 * 62.5%

= 12,500$

i. e 37,500$