Tim Sells Land to Brad for $90,000

question 72

Multiple Choice

Tim sells land to Brad for $90,000. Tim originally purchased the land for $50,000. Brad agrees to pay Tim six annual installments of $15,000 each. In year three, Brad makes his third installment of $15,000. How much taxable gain will Tim recognize in year three?

• A)$5,000
• B)$6,667
• C)$13,333
• D)$15,000
• E)All the taxable gain should be recognized in year one.

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Definitions:

Return on Sales

A measure of a company's profitability that calculates how much of a company's sales are converted to net income.

Gross Profit Rate

A financial metric that shows the proportion of money left from revenues after accounting for the cost of goods sold.

Rate of Return on Total Assets

A financial ratio that measures the efficiency of a company's use of its assets in generating profit, calculated by dividing net income by total assets.

Rate of Return on Common Stockholders' Equity

A measure of the profitability relative to the shareholders' equity, demonstrating how efficiently equity is used to generate profits.