Question

Russell Corporation sold a parcel of land valued at $425,000. Its basis in the land was...

Russell Corporation sold a parcel of land valued at $425,000. Its basis in the land was $297,500. For the land, Russell received $101,250 in cash in year 0 and a note providing that Russell will receive $226,000 in year 1 and $97,750 in year 2 from the buyer (plus reasonable interest on the note). (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

a.What is Russell’s realized gain on the transaction?

b.What is Russell’s recognized gain in year 0, year 1, and year 2?

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Answer #1

Solution:

Gain recognized in year 0

 30,375

Gain recognized in year 1

 67,800

Gain recognized in year 2

 29,325

Russell’s realized gain on the transaction for $127,500

Explanation:

Description

Amount

Explanation

(1) Amount Realized

425,000

Given

(2) Adjusted Basis

297,500

Given

(3) Gain Realized

127,500

(1) – (2)

(4) Gross Profit Percentage

30%

(3) / (1)

(5) Payment received in year 0

101,250

Given

Gain recognized in year 0

30,375

(5) x (4)

(6) Payment received in year 1

226,000

Given

Gain recognized in year 1

67,800

(6) x (4)

(7) Payment received in year 2

97,750

Given

Gain recognized in year 2

29,325

(7) x (4)

Gain recognized in year 0

30,375

Gain recognized in year 1

67,800

Gain recognized in year 2

29,325

Total

127,500
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