[The following information applies to the questions displayed below.] Russell Co

Question

[The following information applies to the questions displayed below.] Russell Corporation sold a parcel of land valued at $517,500. Its basis in the land was $382,950. For the land, Russell received $72,750 in cash in year 0 and a note providing that Russell will receive $265,000 in year 1 and $179,750 in year 2 from the buyer. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

b. What is Russell’s recognized gain in year 0, year 1, and year 2?

Explanation / Answer

Solution:

Description

Amount ($)

Explanation

1.Amount realized

517,500

Given in question

2. Adjusted basis

382,950

Given in question

3. Gain realized

134,550

[(1)-(2)] i.e.

=517,500 -382,950

4.Gross Profit %

26 %

[ (3) /(1)] i.e.

=134,550 / 517,500

5. Payment received in Year 0

72,750

Given in question

Gain recognized in Year 0

18,915

[ (5) X (4)] i.e.

=72,750 X 26 %

6. Payment received in Year 1

265,000

Given in question

Gain recognized in Year 1

68,900

[ (6) X (4)] i.e.

=265,000 X 26 %

7. Payment received in Year 2

179,750

Given in question

Gain recognized in Year 2

46,735

[ (7) X (4)] i.e.

=179,750 X 26 %

Answers:

Gain recognized in Year 0 is $ 18,915

Gain recognized in Year 1 is $ 68,900

Gain recognized in Year 2 is $ 46,735

Total Gain $134,550

Note: Total of the $134,550 gain realized is recognized over the three year period.

Description

Amount ($)

Explanation

1.Amount realized

517,500

Given in question

2. Adjusted basis

382,950

Given in question

3. Gain realized

134,550

[(1)-(2)] i.e.

=517,500 -382,950

4.Gross Profit %

26 %

[ (3) /(1)] i.e.

=134,550 / 517,500

5. Payment received in Year 0

72,750

Given in question

Gain recognized in Year 0

18,915

[ (5) X (4)] i.e.

=72,750 X 26 %

6. Payment received in Year 1

265,000

Given in question

Gain recognized in Year 1

68,900

[ (6) X (4)] i.e.

=265,000 X 26 %

7. Payment received in Year 2

179,750

Given in question

Gain recognized in Year 2

46,735

[ (7) X (4)] i.e.

=179,750 X 26 %

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.