Wendy Sold Property on the Installment Basis in 2011 for More

question 10

Multiple Choice

Wendy sold property on the installment basis in 2011 for more than her basis in the property. Wendy was to receive installment payments at the end of each year for the next five years. In 2012, before she collected on the installment obligation for that year, Wendy gave to her daughter (Wilma) the installment obligation so that she could collect the four remaining installments.

• A)Wilma must recognize the gain from all the amounts collected on the installment obligation in 2012 and subsequent years.
• B)Wendy must recognize the gain each year when Wilma collects on the installment obligation.
• C)Wilma must recognize the remaining installment sale gain in 2012.
• D)Wendy must recognize the remaining installment sale gain in 2012 and Wilma will not recognize gain from collecting on the installment obligation.
• E)None of the above.

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Definitions:

Profit Margin

A financial metric that calculates the amount of net income generated as a percentage of revenues.

Objective Function

A mathematical function used in decision-making processes, often in optimization and linear programming, representing the goal to be achieved, such as minimizing costs or maximizing profits.

Contribution Margin

The amount of revenue remaining after subtracting the variable costs of producing a product, serving as an indicator of the product's profitability.

Variable Cost

Costs that change directly in proportion to changes in the volume of production or sales, such as raw materials and direct labor.