Please show all work Lilly, an attorney, sold an antique rug for $60,000 that ha

Question

Please show all work

Lilly, an attorney, sold an antique rug for $60,000 that had been in her home. The rug cost Lilly $12,000 several years ago. Lilly collected $7,000 down and received a one-year interest bearing note for the balance. She is unable to collect the balance, and after incurring court costs of $600, she repossesses the rug. The rug is damaged when she recovers it and is now worth only $49,000.

Requirements a. How much gain must Lilly report in the year of the sale?

b. How much gain, if any, must Lilly report in the year she repossesses the rug?

c. What is the basis of the rug after the repossession?

Explanation / Answer

A) Gain to be recognised in the year of sale = 60000-12000 i.e 48000

Gain to be recognised in the year of repossession = 7000-600 i.e 6400

Basis of rug after repossession = 12000-6400 i.e 5600

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