Question

Jasmine sold land for $250,000 in 2019. The land had a basis of $118,000 and she...

Jasmine sold land for $250,000 in 2019. The land had a basis of $118,000 and she incurred selling expenses of $10,000. Jasmine received $50,000 down in 2019 and will receive five additional annual payments of $40,000 each. How much income will Jasmine recognize in 2020 when she receives the first additional payment of $40,000?

Multiple Choice

  • $0.

  • $18,880.

  • $19,520.

  • $40,000.

Business   Accounting   
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Answer #1

The computation of income which is to be recognized is shown below but before that, we need to follow some steps which are shown below:-

Step 1

Total Land cost = Land basis + Selling expenses

= $118,000 + $10,000

= $128,000

Step 2

Gross profit = Land sale proceeds - Total land cost

= $250,000 - $128,000

= $122,000

Step 3

Gross profit percentage = Gross profit / Land sale proceeds

= $122,000 / $250,000

= 48.80%

Income to be recognized = Amount received * Gross profit percentage

= $40,000 * 48.80%

= $19,520

Therefore the correct option $19,520

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