Perry acquired raw land as an investment in 1996.The land cost $60,000.In 2013,the land is sold for a total sales price of $120,000,consisting of $10,000 cash and the buyer's note for $110,000.Assume that Perry uses the installment method to recognize the gain and receives only the $10,000 down payment in the year of sale.How much gain should Perry recognize in 2013?

Question

Quizplus · Accepted Answer

The gain recognized in 2013 is calculated by determining the gross profit percentage and applying it to the cash received. The gross profit is $60,000 ($120,000 - $60,000), and the gross profit percentage is 50% ($60,000/$120,000). Applying this percentage to the $10,000 cash received results in a recognized gain of $5,000 (50% of $10,000).

Perry Acquired Raw Land as an Investment in 1996