Jasmine sold land for $250,000 in 2014.The land had a basis of $118,000 and she incurred selling expenses of $10,000.Jasmine received $50,000 down in 2014 and will receive five additional annual payments of $40,000 each.How much income will Jasmine recognize in 2015 when she receives the first additional payment of $40,000?

Question

Quizplus · Accepted Answer

To calculate the income recognized in 2015, we need to first determine the gain on the sale of the land. 
Sale price: $250,000 
Basis: $118,000 
Selling expenses: $10,000 
Gain: $122,000 ($250,000 - $118,000 - $10,000)

The down payment of $50,000 that Jasmine received in 2014 was applied towards the gain, leaving an unreported gain of $72,000 ($122,000 - $50,000).

Since Jasmine will be receiving the first additional payment of $40,000 in 2015, we need to calculate the portion of the payment that represents gain. 
Gain to be recognized: ($72,000/5) = $14,400

Therefore, the income that Jasmine will recognize in 2015 when she receives the first additional payment is $19,520 ($40,000 - $14,400).

Thus, the correct answer is (C) $19,520.

Jasmine Sold Land for $250,000 in 2014