Perry acquired raw land as an investment in 2000. The land cost $60,000. In 2014, the land is sold for a total sales price of $120,000, consisting of $10,000 cash and the buyer's note for $110,000. Assume that Perry uses the installment method to recognize the gain and receives only the $10,000 down payment in the year of sale. How much gain should Perry recognize in 2014?

Question

Quizplus · Accepted Answer

The gain recognized in 2014 is calculated by determining the gross profit percentage and applying it to the cash received. The gross profit is $60,000 ($120,000 sales price - $60,000 cost). The gross profit percentage is 50% ($60,000 gross profit / $120,000 sales price). Applying this percentage to the $10,000 cash received results in a recognized gain of $5,000 (50% of $10,000).

Perry Acquired Raw Land as an Investment in 2000