Answer:a. 1,800;
b. 1,200 ($1,800/$6,000 = 30%; $4,000 x .30 = $1,200);
c. 600 (30% x $2,000 = $600)
Explanation:
In tax accounting, adjusted basis refers to the original cost, or the net cost of an asset, after adjusting various tax-related items normally reduced by depreciation deductions.
Given:
Selling Price(S.P) = $6,000
Adjusted Basis (A.B) = $4200
The gain realized from the sale of the land would be:
= S.P - A.B = $(6,000-4200)= $1,800
Now, we calculate the percentage profit on gain realized to enable ease of gain calculation for fragmented payments.
The percentage gain (P.G) is:
(S.P-A.B)/S.P * 100 = (6,000-1,800)/6000 * 100
P.G = (1,800/6,000) * 100 = 30%
Therefore we say that:
Recognized Gain on current year = Amount paid * P.G = $(4,000*0.3) = $1,200
And
Recognized Gain next year = Amount paid * P.G = $(2,000 * 0.3) = $600
Note: P.G is percentage gain.
