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

question 112

Short Answer

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?
${ \text { Current } } \quad { \text { First } } \quad { \text { Second } }$
$\underline { \text { Year } } \quad \quad \underline{ \text { Year } } \quad\quad \underline{ \text { Year } }$
a. ${ 2,000 } \quad\quad { \$ 4,000 } \quad\quad { \$ 4,000 }$
b. $\$ 10,000 \quad \$ - 0 - \quad \$ - 0 -$
c. \$ $- 0 - \quad \$ 4,000 \quad \quad\$ 6,000$
d. $\$ 3,333 \quad \$ 3,333 \quad\quad \$ 3,334$
e. $\$ - 0 - \quad \$ - 0 - \quad \$ 10,000$

---

Definitions:

Revenues Over Expenses

The surplus resulting when total revenues exceed total expenses in a business, indicating profitability.

Board Of Directors

A collection of persons chosen by the shareholders to supervise the corporation's management and make significant decisions on its behalf.