1. In March of year one, Darcie sold land for $500,000. Her basis was $340,000. Accepting a down payment of $90,000, she took back an installment note of $410,000. She agreed to ten payments of $41,000 each, with the first one three months after the escrow closes and subsequent payments due on June 15th of each year until paid. Darcie collected the first four payments before she died. Her executor collected one payment before distributing the note to the three children, Arnold, Bobbie, and Charles, as tenants in common. They collected the final five payments. a. What is the note's gain recognition percentage and the note's basis percentage? b. Construct a table that shows by year (rows) the following (columns): recipient, principal received, gain recognized, note balance (after the payment), basis in the note. c. State how much gain was recognized by Darcie, by the estate, and by each of her three children. Does the total gain recognized square with the $160,000 that should be reported? 2. Suppose the executor of Darcie's estate, after collecting one payment, sold the note for $184,500, discounted from its balance of $205,000. From the date of the sale of the land through the sale of the note, what is the gain or loss recognized, and by whom? Why isn't the total gain $160,000? 3. Suppose shortly after collecting the year five payment, the executor, pursuant to an agreement with the children, distributed the note to Charlie, who collected the remaining five payments. Arnold and Bobbie took other estate assets to make up for their interest in the note. a. How much gain would Darcie report? When? b. How much gain would the estate report? When? c. How much gain does each of the three children report? When? d. Does the total gain recognized square with the $160,000 that should be reported?
1. In March of year one, Darcie sold land for $500,000. Her basis was $340,000. Accepting a down payment of $90,000, she took back an installment note of $410,000. She agreed to ten payments of $41,000 each, with the first one three months after the escrow closes and subsequent payments due on June 15th of each year until paid. Darcie collected the first four payments before she died. Her executor collected one payment before distributing the note to the three children, Arnold, Bobbie, and Charles, as tenants in common. They collected the final five payments. a. What is the note's gain recognition percentage and the note's basis percentage? b. Construct a table that shows by year (rows) the following (columns): recipient, principal received, gain recognized, note balance (after the payment), basis in the note. c. State how much gain was recognized by Darcie, by the estate, and by each of her three children. Does the total gain recognized square with the $160,000 that should be reported? 2. Suppose the executor of Darcie's estate, after collecting one payment, sold the note for $184,500, discounted from its balance of $205,000. From the date of the sale of the land through the sale of the note, what is the gain or loss recognized, and by whom? Why isn't the total gain $160,000? 3. Suppose shortly after collecting the year five payment, the executor, pursuant to an agreement with the children, distributed the note to Charlie, who collected the remaining five payments. Arnold and Bobbie took other estate assets to make up for their interest in the note. a. How much gain would Darcie report? When? b. How much gain would the estate report? When? c. How much gain does each of the three children report? When? d. Does the total gain recognized square with the $160,000 that should be reported?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. In March of year one, Darcie sold land for $500,000. Her basis was $340,000.
Accepting a down payment of $90,000, she took back an installment note of
$410,000. She agreed to ten payments of $41,000 each, with the first one three
months after the escrow closes and subsequent payments due on June 15th of
each year until paid. Darcie collected the first four payments before she died. Her
executor collected one payment before distributing the note to the three children,
Arnold, Bobbie, and Charles, as tenants in common. They collected the final five
payments.
a. What is the note's gain recognition percentage and the note's basis
percentage?
b. Construct a table that shows by year (rows) the following (columns):
recipient, principal received, gain recognized, note balance (after the
payment), basis in the note.
c. State how much gain was recognized by Darcie, by the estate, and by each
of her three children. Does the total gain recognized square with the
$160,000 that should be reported?
2. Suppose the executor of Darcie's estate, after collecting one payment, sold the note
for $184,500, discounted from its balance of $205,000. From the date of the sale of
the land through the sale of the note, what is the gain or loss recognized, and by
whom? Why isn't the total gain $160,000?
3. Suppose shortly after collecting the year five payment, the executor, pursuant to an
agreement with the children, distributed the note to Charlie, who collected the
remaining five payments. Arnold and Bobbie took other estate assets to make up for
their interest in the note.
a. How much gain would Darcie report? When?
b. How much gain would the estate report? When?
c. How much gain does each of the three children report? When?
d. Does the total gain recognized square with the $160,000 that should be
reported?
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