Steve Purchases Some Land for $30,000

question 4

Multiple Choice

Steve purchases some land for $30,000.He maintains it,but makes no improvements to it.One year later he sells it for $32,000.Stephanie puts $30,000 in a savings account that pays 6% interest.Steve has to pay the 50% capital gains tax,Stephanie is in the 35% tax bracket.The inflation rate was 2%.Who had the higher before-tax real gain and who had the higher after-tax real gain?

• A)Steve had both the higher before-tax real gain and the higher after-tax real gain.
• B)Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
• C)Stephanie had the higher before-tax real gain but Steve had the higher after-tax real gain.
• D)Stephanie had both the higher before-tax real gain and the higher after-tax real gain.

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Definitions:

Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Merchandisers

Businesses that purchase and sell goods without significantly altering their form.

Performance Obligation

A duty or commitment that a company must fulfill to transfer a promised good or service to a customer.

Sales Returns And Allowances

Sales returns and allowances account for the reduction in sales revenues due to returned or defective products allowed by a company to its customers.