In 2016,Beth sold equipment used in her business.Her basis in the property was $300,000 ($500,000 cost less $200,000 of depreciation).Beth sold the property for $400,000,with $100,000 due on the date of the sale and $300,000 (plus interest at the Federal rate)due in 2017.Beth's recognized gain from the installment sale in 2016 is:

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The recognized gain from the installment sale in 2016 is equal to the gross profit percentage applied to the amount of cash received in 2016. The gross profit percentage is calculated by dividing the gain on the sale ($400,000 - $300,000 basis = $100,000) by the total contract price ($400,000). Therefore, the gross profit percentage is 25%. The amount of gain recognized in 2016 is then calculated by multiplying the gross profit percentage by the amount of cash received in 2016 ($100,000). 25% x $100,000 = $25,000. This amount is less than the total gain on the sale, so Beth must report the remaining gain in 2017 when she receives the final payment. Therefore, the recognized gain from the installment sale in 2016 is $25,000 or choice C.

In 2016,Beth Sold Equipment Used in Her Business