An installment sale
I.occurs whenever property is sold and at least one payment is received in a tax year subsequent to the year of sale.
II.may be disregarded by a taxpayer who elects to recognize the entire gain in the year of sale.
III.triggers a method of income recognition based upon the wherewithal-to-pay concept.
IV.allows businesses that sell inventory on credit to defer recognition of income until payment is received.

A)Only statement I is correct.
B)Only statements I, and II are correct.
C)Only statements I, II, and III are correct.
D)Only statements I and IV are correct.
E)Only statements II, III, and IV are correct.

Question

An installment sale
I.occurs whenever property is sold and at least one payment is received in a tax year subsequent to the year of sale.
II.may be disregarded by a taxpayer who elects to recognize the entire gain in the year of sale.
III.triggers a method of income recognition based upon the wherewithal-to-pay concept.
IV.allows businesses that sell inventory on credit to defer recognition of income until payment is received.
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A)Only statement I is correct.
B)Only statements I, and II are correct.
C)Only statements I, II, and III are correct.
D)Only statements I and IV are correct.
E)Only statements II, III, and IV are correct.

Quizplus · Accepted Answer

Statement I is correct as an installment sale involves receiving at least one payment in a tax year subsequent to the year of sale. Statement II is also correct as a taxpayer can elect to recognize the entire gain in the year of sale instead of using the installment method. Statement III is correct as the installment method of income recognition is based on the wherewithal-to-pay concept. Statement IV is incorrect as businesses that sell inventory on credit usually use the accrual method of accounting and do not defer recognition of income until payment is received.

An Installment Sale I.occurs Whenever Property Is Sold and at Least One Payment