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21 August, 19:40

1. Brian Brewster sold property to a buyer who paid him $400,000 cash and the buyer assumed Brian's existing mortgage of $150,000. The property had cost $250,000 and he had made improvements of $50,000. Depreciation of $100,000 has been properly claimed and selling expenses were $20,000. What is the amount of gain realized? (A) $100,000 (B) $200,000 (C) $250,000 (D) $280,000 (E) $330,000

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  1. 21 August, 20:33
    0
    E. You have to watch where it says he assumed his existing mortgage.
  2. 21 August, 22:51
    0
    gain on sale of property = $330,000

    so correct option is E) $330,000

    Explanation:

    given data

    sale price = $400,000

    existing mortgage = $150,000

    property cost = $250,000

    improvements = $50,000

    Depreciation = $100,000

    selling expenses = $20,000

    to find out

    the amount of gain realized

    solution

    we find first net sale price that is

    net sale price = sale price + existing mortgage - selling expenses ... 1

    put here value we get

    net sale price = $400,000 + $150,000 - $20,000

    net sale price = $530,000

    and

    net book value of property is

    net book value = property cost + improvements - Depreciation ... 2

    put here value we get

    net book value = $250,000 + $50,000 - $100,000

    net book value = $200,000

    so

    gain on sale of property is

    gain on sale of property = net sale price - net book value of property ... 3

    put here value we get

    gain on sale of property = $530,000 - $200,000

    gain on sale of property = $330,000

    so correct option is E) $330,000
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