On June 11,two years ago,Gia sold land with a cost of $15,000 for $45,000.Gia collected $20,000 initially and is scheduled to receive $5,000 each year for five years starting last year plus an acceptable rate of interest.This year,Gia decided to sell one installment note to a bank that agreed to pay $4,100.As a result of the sale of the note,Gia must report

Question

Quizplus · Accepted Answer

To calculate the gain or loss from the sale of the installment note, we need to first determine the carrying value of the note. The carrying value is the present value of the remaining payments, discounted at the acceptable rate of interest.

Here's how to calculate the carrying value:

- Remaining payments: $5,000 x 4 = $20,000
- Discount factor (at acceptable rate of interest): 3.605
- Carrying value: $20,000 ÷ 3.605 = $5,543.46

Since the bank purchased the note for $4,100, Gia incurred a loss of $1,443.46 ($5,543.46 - $4,100).

However, since the original sale of land resulted in a gain of $30,000 ($45,000 - $15,000), and Gia only received $20,000 initially, she would have already recognized a gain of $20,000.

Therefore, the net gain from both transactions would be $18,566.54 ($20,000 + (-$1,443.46)).

However, since the question asks for the gain or loss specifically resulting from the sale of the note, the answer is a gain of $2,433.46 ($4,100 - $1,443.46).

So the best choice is C, $2,433 gain.

On June 11,two Years Ago,Gia Sold Land with a Cost