Cathy owns property subject to a mortgage of $5,000. Annual real estate taxes are $800 and are due and payable on December 31. Cathy sells her property on July 1 of the current year. The buyer assumes her $5,000 mortgage, and Cathy agrees to finance the sale by taking a mortgage note of $50,000 and property valued at $7,500. The buyer agrees to pay the seller's portion of the property taxes. What is Cathy's amount realized?
A)$50,000
B)$57,500
C)$62,500
D)$62,900
E)$63,300

Question

Quizplus · Accepted Answer

Cathy's amount realized is the net amount of cash she receives from the sale. To calculate this, we need to subtract all of Cathy's liabilities from the total amount of consideration.

Total consideration paid = assumed mortgage + mortgage note + property value 
Total consideration paid = $5,000 + $50,000 + $7,500 
Total consideration paid = $62,500

Liabilities owed by Cathy:

- Real estate taxes (half year) = $800 / 2 = $400 
- Remaining balance on the mortgage = $5,000

Total liabilities = $5,400

Therefore, the amount realized by Cathy is:

Amount realized = Total consideration paid - Liabilities 
Amount realized = $62,500 - $5,400 
Amount realized = $62,900

Therefore, the correct answer is (D) $62,900.

Cathy Owns Property Subject to a Mortgage of $5,000