M sold a family heirloom to her nephew last year for $1,200 plus an $1,800 note payable to M at $100 per month plus interest.The silver place settings had been purchased by M 30 years earlier for $1,600, and were worth $6,000 at the time of the sale/gift.How much gain does M realize?

Question

Quizplus · Accepted Answer

To calculate the gain realized by M, we need to calculate the cost basis of the silver place settings. 
Cost basis = Purchase price + any improvements - accumulated depreciation
Since this is a family heirloom, we can assume there were no improvements or depreciation. Therefore, the cost basis is the purchase price of $1,600. 
The selling price of the silver place settings is $1,200 cash and an $1,800 note payable to M. So the total selling price is $3,000 ($1,200 + $1,800). 
Gain realized = Selling price - Cost basis
= $3,000 - $1,600
= $1,400

M Sold a Family Heirloom to Her Nephew Last Year