In: Accounting
Steve Drake sells a rental house on January 1, 2019, and receives $100,000 cash and a note for $50,000 at 7 percent interest. The purchaser also assumes the mortgage on the property of $25,000. Steve's original cost for the house was $170,000 on January 1, 2011 and accumulated depreciation was $27,000 on the date of sale. He collects only the $100,000 down payment in the year of sale.
a. If Steve elects to recognize the total gain
on the property in the year of sale, calculate the taxable
gain.
$
b. Assuming Steve uses the installment sale method, complete Form 6252 for the year of the sale.
If an amount is zero, enter "0". Enter all amounts as positive numbers. Round all decimals to four places and any dollar amount to the nearest dollar.
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c. Assuming Steve collects $5,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized in that year under the installment sale method.
Round your answer to the nearest dollar.
$
To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go
As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table
1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2
2. Calculate exponential of logit in the next column by using exp (value in previous column)
3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column
4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)
5. take the total of the column values of log likelihood
6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2
which comes out to be b0=-14.72, b1=89.83, b2= 8.37
therefore you will get logit as
-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets
With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get
logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833
exp (logit) = 1.20
Probability= 0.546
Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605