Perry acquired raw land as an investment 16 years ago. The land cost $50,000. In the current year, 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 the current year?

Question

Quizplus · Accepted Answer

Perry should first determine the gross profit percentage on the sale, which is the gain divided by the total sales price: ($120,000 - $50,000) / $120,000 = 0.5833 or 58.33%. Perry should then multiply the gross profit percentage by the cash received in the year of sale to calculate the gain to be recognized: 58.33% x $10,000 = $5,833. Therefore, the correct answer is B.

Perry Acquired Raw Land as an Investment 16 Years Ago