Question

Oliver, a widower who does not live in a community property state, sold 50 acres of land he and his wife had paid $10,000 for in 1999. She died in 2009. As of the date of her death, the land was valued at $50,000 for estate tax purposes. Oliver sold the land for $100,000 on an installment basis. What is his gross profit percentage?

Answer 1

Answer:

The options are given below:

A. 50%

B. 60%

C. 70%

D. 80%

The correct option is C.

Explanation:

From the question above, we are asked to calculate Oliver's gross profit percentage.

• Gross profit percentage is calculated by dividing the gross profit made from the sale by the contract price.
• Gross profit is calculated by subtracting the installment sale basis from the selling price.
• Contract price refers to the total of all the principal payments that are to be received on the installment sale.

Oliver's adjusted basis at the time of sale is:

$30,000 ($5,000 + .50 ($50,000))

His gross profit percentage is:

70% [($100,000 - $30,000) ÷ $100,000].