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. $\$ - 0 - \quad \$ - 0 - \quad \$ 10,000$

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Definitions:

Cultural Relative

The concept that beliefs, values, norms, and practices are understood and should be evaluated within their own cultural context rather than judged against another standard.

Cognitive Process

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Cultural Contexts

The societal, economic, historical, and personal circumstances that surround and influence the environment in which a person operates.

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