In 2011,Helen sold equipment used in her business and reported her gain by the installment method.Her basis in the property was $250,000 ($400,000 cost less $150,000 of depreciation).Helen sold the property for $500,000,with $200,000 due on the date of the sale and $300,000 (plus interest at the Federal rate)due in 2012.Helen's recognized installment sale gain in 2011 is:

Question

Quizplus · Accepted Answer

Under the installment method, the gain is recognized proportionally as payments are received. Helen's installment sale gain can be calculated as follows:

Total contract price = $500,000
Minus: Basis = $250,000
Equals: Gain = $250,000

Helen received $200,000 in 2011, which is 40% of the total contract price ($200,000/$500,000), so her recognized installment sale gain in 2011 is 40% of the total gain, or $100,000.

The remaining $300,000 (plus interest) is due in 2012, so the rest of the gain will be recognized in that year. However, since the gain is subject to interest, the total gain recognized could be slightly higher than $250,000, depending on the applicable interest rate.

In 2011,Helen Sold Equipment Used in Her Business and Reported