Question

I

n year 0, Javens Inc. sold machinery with a fair market value of $500,000 to Chris. The machinery’s original basis was $394,000 and Javens’s accumulated depreciation on the machinery was $60,000, so its adjusted basis to Javens was $334,000. Chris paid Javens $50,000 immediately (in year 0) and provided a note to Javens indicating that Chris would pay Javens $75,000 a year for six years beginning in year 1.

1. What is the amount and character of the gain that Javens will recognize in year 0?
2. What amount and character of the gain will Javens recognize in years 1 through 6?

Answer 1

cale & calculate the gain on installment Description Amount $) 400 000 317000 50000 26 700D 133.000 11 Amount Realized 2) original dasis 3) Accumulated depreciation 4) Adjusted basis 617000-50000) s) Realized gain Ilass (UODOOD-267000) bordinary income from $1245 depreciation I recapture + Gain eligible for installment reporting (33000-50 00D) 50000 (endine Lester than@and ) 83000 20.75% 8) Gross profit percentagel 83000 UDDDDD 40000 (downpayment) a) 10) 8300 58300 * payment received in year o Gain recognized on payment in year o (40000 x 20.75) Total again recognized in year o (5000d +8300) payment received in year & through 6 Gain recognized in year I thorough 6 (60000 x 20.75%) 60000 11) 12450