Nick Sells Land with a $7,000 Adjusted Basis for $10,000

question 60

Essay

Nick sells land with a $7,000 adjusted basis for $10,000.Nick receives a $2,000 down payment with the balance of $8,000 due the following year.Nick is unable to collect the remaining $8,000 and,after incurring legal fees of $500,he repossesses the land when it has a fair market value of $9,000.
a.What is the amount of gain that Nick must report in the first year?
b.What is the amount of gain that Nick must report in the second year?
c.What is the basis in the repossessed stock?

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Definitions:

Peroxisomes

Organelles found in virtually all eukaryotic cells that contain enzymes involved in the detoxification of harmful substances and in metabolic pathways.

Vesicles

Small structures within cells that contain fluid or cytoplasm and are used for storing or transporting substances.

Enzymes

Proteins that catalyze and speed up chemical reactions in the body without being consumed or altered in the process.

Dissecting Microscope

A low magnification microscope designed for viewing and manipulating large, detailed specimens, such as biological tissues during dissection.