Question

Conroy Corporation agrees to sell some of its excess machinery for $190,000 consisting of a $70,000...

Conroy Corporation agrees to sell some of its excess machinery for $190,000 consisting of a $70,000 down payment in year of sale and additional payments of $60,000 in each of the next two years, plus interest. Conroy purchased this machinery several years ago for $156,000 and had claimed accumulated depreciation of $47,000. How much income should Conroy Corporation recognize in each year assuming that it uses the installment method? How does your answer change if Conroy elects out of the installment method for this sale?

Homework Answers

Answer #1

Installment method:

Particulars Amount
Sale value            190,000
Less: adjusted basis           (109,000)
Gain on sale              81,000
Gross profit 42.63%
Sale year Year 1 Year 2
Gross receipts              70,000            60,000            60,000
× GP rate 42.632% 42.632% 42.632%
Recognized gain         29,842.11      25,578.95      25,578.95

Without installment method:

Recognized gain in the year of sale = 81,000

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