Question

Russell Corporation sold a parcel of land valued at $440,000. Its basis in the land was...

Russell Corporation sold a parcel of land valued at $440,000. Its basis in the land was $294,800. For the land, Russell received $121,500 in cash in year 0 and a note providing that Russell will receive $229,000 in year 1 and $89,500 in year 2 from the buyer (plus reasonable interest on the note). (Do not round intermediate calculations. Round your final 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?

Year 0
Year 1
Year 2
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Homework Answers

Answer #1

SOLUTION

1. Realized Gain = $145,200

2. Recognized Gain -

Year 0- $40,095

Year 1 - $75,570

Year 2 - $29,535

S.No. Description Amount ($) Explanation
1. Amount Realized 440,000 Given
2. Adjusted Basis 294,800 Given
3. Gain Realized 145,200 (1) - (2)
4. Gross Profit Percentage 33% (3) / (1)
5. Payment received in year 0 121,500 Given
Gain recognized in year 0 40,095 (5) * (4)
6. Payment received in year 1 229,000 Given
Gain recognized in year 1 75,570 (6) * (4)
7. Payment received in year 2 89,500 Given
Gain recognized in year 2 29,535 (7) * (4)
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