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 $150,000 in cash in the current year and a note providing Peroni with $150,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively?

Multiple Choice

$0, $50,000.

$10,000, $40,000.

$25,000, $25,000.

$50,000, $0.

None of the choices are correct.

Answer 1

$25,000, $25,000.

Step-by-step explanation:

For computing the gain recognized, first we have to determine the gross profit percentage which is shown below:

= (Sale value of land - land basis) ÷ (Sale value of land)

= ($300,000 - $250,000) ÷ ($300,000)

= $50,000 ÷ $300,000

= 16.67%

Now the recognized gain would be

First year = $150,000 × 16.67% = $25,000

Second year = $150,000 × 16.67% = $25,000