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?

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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