Question

b. Geraldo is a sales manager who enjoys collecting antique guns. Geraldo attends various shows around the country at which collectors and dealers sell and trade guns. During the current year, Geraldo sells 3 guns for a total of $6,200 (the cost of the guns to Geraldo was $4,000) and purchases 2 guns at a total cost of $2,400. In addition, he exchanges a gun for which he had paid $700 for another gun worth $800.

Geraldo has ? of income from the sale of the 3 guns. He also has ?of income from the gun exchange. The exchange of guns constitutes a realization—his wealth has increased  in an arm's-length transaction. All income received is taxable .

How much income is from the sale of the 3 guns?

How much income was from the gun exchange?

Answer 1

Geraldo sells 3 guns for a total of = $6,200

The cost of the guns to Geraldo = $4,000

Income from the sale of 3 guns = Sale price of 3 guns - Cost of 3 guns

= 6,200- 4,000

= $2,200

Geraldo exchanges a gun for which he had paid $700 for another gun worth $800.

Income from gun exchange = Value of gun received - Cost of gun given

= 800 - 700

= $100

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