[Anonymous]

Can someone please help me understand why the correct answer is c. $165,000. I thought the liability doesn’t come into play until you are computing contract price (sales price – liability) in the denominator of the GP % part of the formula. Here we are just computing the numerator or GP. The answer says that you add the liability. I arrived at my answer as follows: 200,000-75,000-10,000 = 115,000 Gross Profit Thanks for your help.

In year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer’s adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?

a. $115,000

b. $125,000

c. $165,000

d. $175,000

[Anonymous]

bump,.. :/

[rzrbkfaith]

The property sold for $200,000 PLUS the buyer assumed $50,000 in debt = $250,000 realized income to the seller.

The seller's basis was $75,000 plus they incurred $10,000 in selling expenses. Both the basis and selling expenses would be netted against the realized income to determine gross profit.

$200,000+$50,000-$75,000-$10,000 = $165,000

AUD - 99
BEC - 97
REG - 91
FAR - 1/8/16

[Author]

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