Question

Steve sold for $200,000 his undivided one-third interest in an apartment building in which he had $30,000 adjusted basis. The buyer put $40,000 down, assumed Steve’s share of the mortgage, and signed an installment obligation with a face value of $120,000. $20,000 of the principal was paid at the end of the year sale. Compute the following:

a. Contract price

b. Gross profit and gross profit percentage.

c. Payment in year of sale

d. Gain in the year of sale

Answer #1

a) | |

Down payment | $ 40,000.00 |

Installment obligation | $ 120,000.00 |

Excess of mortgage assumed over basis(30000-2000) | $ 10,000.00 |

Contract price | $ 170,000.00 |

b) | |

Gross proft = $170,000 - $0 | $ 170,000.00 |

Gross proft percentage = 100% ($170,000 ÷ $170,000). | 100% |

c) | |

Down payment | $ 40,000.00 |

Mortgage assumed over basis | $ 10,000.00 |

Installment payment made | $ 20,000.00 |

Payments in year of sale | $ 70,000.00 |

d) | |

Gain in year of sale | $ 100,000.00 |

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