Problem 11-63 (LO 11-6) [The following information applies to the questions disp

Question

Problem 11-63 (LO 11-6)

[The following information applies to the questions displayed below.]

Russell Corporation sold a parcel of land valued at $592,500. Its basis in the land was $355,500. For the land, Russell received $83,250 in cash in year 0 and a note providing that Russell will receive $231,000 in year 1 and $278,250 in year 2 from the buyer. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

a. What is Russell’s realized gain on the transaction?

b. What is Russell’s recognized gain in year 0, year 1, and year 2?

Year 0

year 1

year 2
     

Realized gain

Explanation / Answer

a. Realized gain = Sale price - Basis = $592500 - $355500

= $237000

b.

Year 0 = $33300
Year 1 = $92400
Year 2 = $111300

(1) Amount Realized $592500 Given (2) Adjusted Basis $355500 Given (3) Gain Realized $237000 (1) - (2) (4) Gross Profit Percentage 40.00% (3) / (1) (5) Payment received in year 0 $83250 Given Gain recognized in year 0 $33300 (5) x (4) (6) Payment received in year 1 $231000 Given Gain recognized in year 1 $92400 (6) x (4) (7) Payment received in year 2 $278250 Given Gain recognized in year 2 $111300 (7) x 4)

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