Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Question

Quizplus · Accepted Answer

Peroni's total gain is $50,000 ($300,000 - $250,000). Under the installment sale method, the gain is recognized proportionally as payments are received. In the current year, Peroni receives $150,000, which is 50% of the total sale price. Therefore, 50% of the total gain ($50,000) is recognized in the current year, which is $25,000. The remaining $25,000 is recognized in the subsequent year when the note is paid.

Peroni Corporation Sold a Parcel of Land Valued at $300,000