Pedro, Not a Dealer, Sold Real Property That He Owned

question 90

Multiple Choice

Pedro, not a dealer, sold real property that he owned with an adjusted basis of $120,000 and encumbered by a mortgage for $56,000 to Pat in 2015. The terms of the sale required Pat to pay $28,000 cash, assume the $56,000 mortgage, and give Pedro eleven notes for $12,000 each (plus interest at the Federal rate) . The first note was payable two years from the date of sale and each succeeding note became due at two-year intervals. Pedro did not "elect out" of the installment method for reporting the transaction. If Pat pays the 2017 note as promised, what is the recognized gain to Pedro in 2017 (exclusive of interest) ?

• A)$12,000
• B)$7,200
• C)$4,800
• D)$0
• E)None of the above

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Definitions:

Reserve Requirement

The minimum fraction of customer deposits and notes that each commercial bank must hold as reserves rather than lending out, set by the central bank.

Demand Deposits

Bank accounts from which money can be withdrawn at any time without any notice to the institution.

Time Deposits

Banking or financial instruments that require the holder to keep the money deposited for a fixed term or period of time, often offering higher interest rates than savings accounts.

Federal Reserve Banks

A system of 12 banks in the United States that serve as the central banking system, responsible for implementing monetary policy, regulating banks, and ensuring the stability of the financial system.