Question

If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

a. True
b. False

Answer 1

The statement that the seller's amount realized is decreased by the amount of liability assumed by the buyer is false because the seller essentially receives a higher total consideration when the buyer assumes the seller's liability, thus increasing the amount realized.

Step-by-step explanation:

The statement in question is false because the amount realized by the seller from the sale of a property includes the total consideration received, not just the cash payment but also the relief from any existing liabilities. Thus, when a buyer assumes the seller's liability, it effectively increases the total payment received by the seller.

For example, if a seller sells a property that has a mortgage liability of $50,000 and the buyer agrees to pay $200,000 and assumes the $50,000 mortgage, the seller's amount realized is $250,000 ($200,000 cash + $50,000 liability assumed by the buyer).