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Company Gain and Interest

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On June 30, 2007, Kelly sold property for $250,000 cash on the date of sale and a $750,000 note due on September 30, 2008. No interest was stated in the contract. The present value of the mote (using 6.5%, which was the Federal rate) was $692,625. Kelly's basis in the property was $400,000, and $40,000 of the gain was subject to depreciation recapture under § 1245. Expenses of the sale totaled $10,000, and Kelly was not a dealer in the property sold.
a. Compute Kelly's gain to be reported in 2007
b. Compute Kelly's interest income for 2008

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Solution Summary

This solution uses the accrual method of accounting to determine Kelly's gain in 2007 using PV of sales, property and gain. It also finds out the interest in income in 2008.

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We will use accrual method pf accounting

Net PV of sales = 250,000 + ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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