Accounting Methods: Installment Sales

Question 1

To determine the Gross Profit Percentage

Answer 1

(Selling Price - Adjusted Basis) divided by Selling Price

Question 2

When property is repossessed after an installment sale

Answer 2

the taxpayer must figure the gain or loss on the repossession and the basis of the repossessed property

Question 3

Calculating Profit on installment sale tranaction

Answer 3

Gross proceeds of sale: $600,000 (5 × $120,000)
Basis of building: $420,000 ($500,000 - $80,000 depreciation)
Profit amount: $180,000 ($600,000 - $420,000)
Profit ratio: $180,000 ÷ $600,000 = 0.30 (30%)

When each payment is received under the installment agreement, 30% should be booked as capital gain on $36,000.

0.30 × $120,000 = $36,000