In: Accounting
[The following information applies to the questions displayed below.] Russell Corporation sold a parcel of land valued at $517,500. Its basis in the land was $382,950. For the land, Russell received $72,750 in cash in year 0 and a note providing that Russell will receive $265,000 in year 1 and $179,750 in year 2 from the buyer. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
b. What is Russell’s recognized gain in year 0, year 1, and year 2?
Solution:
Description |
Amount ($) |
Explanation |
1.Amount realized |
517,500 |
Given in question |
2. Adjusted basis |
382,950 |
Given in question |
3. Gain realized |
134,550 |
[(1)-(2)] i.e. =517,500 -382,950 |
4.Gross Profit % |
26 % |
[ (3) /(1)] i.e. =134,550 / 517,500 |
5. Payment received in Year 0 |
72,750 |
Given in question |
Gain recognized in Year 0 |
18,915 |
[ (5) X (4)] i.e. =72,750 X 26 % |
6. Payment received in Year 1 |
265,000 |
Given in question |
Gain recognized in Year 1 |
68,900 |
[ (6) X (4)] i.e. =265,000 X 26 % |
7. Payment received in Year 2 |
179,750 |
Given in question |
Gain recognized in Year 2 |
46,735 |
[ (7) X (4)] i.e. =179,750 X 26 % |
Answers:
Gain recognized in Year 0 is $ 18,915
Gain recognized in Year 1 is $ 68,900
Gain recognized in Year 2 is $ 46,735
Total Gain $134,550
Note: Total of the $134,550 gain realized is recognized over the three year period.