Question

On January 1, 2020, Shamrock Corporation sold a building that cost $270,060 and that had accumulated depreciation of $107,240 on the date of sale. Shamrock received as consideration a $260,060 non-interest-bearing note due on January 1, 2023. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2020, was 10%. At what amount should the gain from the sale of the building be reported? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The amount of gain should be reported

$enter a dollar amount of gain should be reported

Answer 1

Cost price of building = $270,060

Accumulated depreciation = $107,240

Book value of building = Cost price of building - Accumulated depreciation

= 270,060 - 107,240

= $162,820

Shamrock received as consideration a $260,060 non-interest-bearing note due on January 1, 2023

The prevailing rate of interest for a note of this type on January 1, 2020, was 10%.

Time period (n) = 3 years

Present value of note on January 1, 2020 = Future value of note x Present value factor (i%, n)

= $260,060 x Present value factor (10%, 3)

= 260,060 x 0.75131

= $195,386

Amount of gain from the sale of the building to be reported = Present value of note on January 1, 2020 - Book value of building

= $195,386 - $162,820

= $32,566

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