Pedro Sells Land That He Held as an Investment with a Basis

question 30

Multiple Choice

Pedro sells land that he held as an investment with a basis of $40,000 for $50,000.The terms of the sale require the buyer to pay Pedro $10,000 at the closing of the sale and $20,000 per year for the next 2 years with interest at 7% on the unpaid balance.What is the proper amount of gain to be reported from the sale during each year Pedro receives payments?
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Current First Second
Year Year Year

• A)$2,000 $4,000 $4,000
• B)​$10,000 $-0- $ -0-
• C)​$ -0- $4,000 $6,000
• D)​$ 3,333 $3,333 $3,334
• E)​$-0- $ -0- $10,000

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Definitions:

Bill Paying

The process of settling invoices or bills owed to suppliers or creditors, typically involving the outflow of cash from an entity's bank account.

Equity Account

An account representing the owner's interest in a company, indicating the difference between assets and liabilities.

Capital Stock

The total amount of a company's shares of stock, representing ownership in the company.

Records Expense

The act of documenting or entering an expense into the accounting system to reflect its impact on the financial statements.