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24 February, 21:53

Peroni Corporation sold a parcel of land valued at $300,000. Its basis in the land was $250,000. For the land, Peroni received $75,000 in cash in the current year and a note providing Peroni with $225,000 in the subsequent year. What is Peroni's recognized gain in the current and subsequent year, respectively

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  1. 24 February, 22:27
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    Peroni's recognized gain in the current and subsequent year is $12,502 and $37,507

    Explanation:

    In order to calculate Peroni's recognized gain in the current and subsequent year we would have to calculate first the Gross profit on sale with the following formula:

    Gross profit on sale = (parcel of land sold-land basis) / parcel of land sold

    Gross profit on sale = ($300,000-$250,000) / $300,000

    Gross profit on sale=16.67%

    Hence, Peroni's recognized gain in the current and subsequent year would be as follows:

    current year=amount received in cash*Gross profit on sale

    current year=$75,000*16.67%

    current year=$12,502

    subsequent year=$225,000*16.67%

    subsequent year=$37,507

    Peroni's recognized gain in the current and subsequent year is $12,502 and $37,507
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