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RA BUYER AND A SELLER HAVE ENTERED INTO AN AGREEMENT TO SELL PROPERY FOR PAYMENTS FOR...

RA BUYER AND A SELLER HAVE ENTERED INTO AN AGREEMENT TO SELL PROPERY FOR PAYMENTS FOR 1 MILLION PLUS 8% INTEREST DUE AT THE END OF EACH OF THE NEXT 4 YEARS. THE SELLER HAD AN ADJUSTED BASIS IN THE PROPERTY OF 2 MILLION. WHAT IS THE AMOUNT OFGAIN THAT THE SELLER WILL REPORT AT THE END OF THE FIRST YEAR BASED ON RECOGNIZING GAIN ON THE INSTALLMENT METHOD

0

500,000

$1 MILLION

$2 MILLION

business   accounting   
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Answer #1

The answer is 0, as the there is no gain made in the first year, In the installment method of sale, Buyer is allowed to make payment through an extended period of time. All Revenue and expenses related to installment sale method are recognized only when the actual receipt of  cash and not at the time of sale. In this question to recognize revenue the business has to wait until third year.

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