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

The gain recognized in each year is calculated as follows; the gross profit percentage is multiplied by the amount realized in each year to determine the recognized gain. The gross profit percentage is the gain realized over the total amount realized. The $50,000 gain realized is the $300,000 amount realized ($150,000 cash plus $150,000 note) less the $250,000 adjusted basis. In the current year, the $150,000 proceeds (cash) is multiplied by the 16.67 percent gross profit percentage to determine the $25,000 gain recognized.

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