Q1. A corporation sold property with an adjusted basis of $300,000 in an installment sale in Year 1. The terms of the sale called for a payment of $100,000 at the time of the sale and five annual payments of $100,000 each, plus interest on the outstanding balance.
(a) Compute the corporation's gross profit percentage on the sale
(b) How much of the realized gain must Walker recognize in Year 1?
(c) How much of the realized gain must Walker recognized each year in Year 2 through 6?
Q2. Herold transfers Blackacre to Maude in exchange for Whiteacre and $125,000 in cash. The two parcels of land have the following tax attributes:
Blackacre Whiteacre
Fair market value $450,000 $300,000
Basis $200,000 $375,000
Mortgage $100,000 $75,000
Assuming these properties are held as an investment for both Harold and Maude, analyze the tax consequences of the transaction to each party. How much gain or loss does each party recognize? What is the basis of the properties held by each at the end of the transaction? How much of each party's gain or loss is postponed (deferred)?