Grant Corporation sells land (a noninventory item)with a basis of $57,000 for $100,000. Nichole will be paid on an installment basis in five equal annual payments, starting in the current year. The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes)by
A)$0.
B)$8,600.
C)$43,000.
D)$100,000.

Question

Quizplus · Accepted Answer

When a noninventory item is sold on an installment basis, the gain is recognized and included in E&P in proportion to the percentage of the installment payments actually received during the year. In this case, the gain is $43,000 ($100,000 - $57,000). Since the installment payments are made over five years, 20% of the gain will be included in E&P each year. Therefore, the increase in E&P for the year of sale will be $8,600 ($43,000 x 20%).

Grant Corporation Sells Land (A Noninventory Item)with a Basis of $57,000