Question

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $75,000 in cash in the current year and a note providing Peroni with $225,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively

Answer 1

Answer:

Peroni's recognized gain in the current and subsequent year is $12,502 and $37,507

Explanation:

In order to calculate Peroni's recognized gain in the current and subsequent year we would have to calculate first the Gross profit on sale with the following formula:

Gross profit on sale=(parcel of land sold-land basis)/parcel of land sold

Gross profit on sale=($300,000-$250,000)/$300,000

Gross profit on sale=16.67%

Hence, Peroni's recognized gain in the current and subsequent year would be as follows:

current year=amount received in cash*Gross profit on sale

current year=$75,000*16.67%

current year=$12,502

subsequent year=$225,000*16.67%

subsequent year=$37,507

Peroni's recognized gain in the current and subsequent year is $12,502 and $37,507