Installment Sale Zachary Davis owns several apartment buildings in Los Angeles and has an offer from a business associate, Ace Arnold, to purchase one of the buildings on October 31, 2022. Ace does not have the money to purchase the apartment building outright and offers to pay Zachary over a five-year period beginning next year. Zachary is leery, but he contacts his attorney to draw up a contract with the following information: 

• Sales price $500,000 

• Payments of $100,000 each, to be made on January 1 of 2023, 2024, 2025, 2026, and 2027. 

• Interest rate 6%, semiannual compounding beginning January 1, 2023. 

Zachary had paid $385,000 for the building and its adjusted basis as of October 31, 2022, is $351,400.

Required
Would the amount realized be 385,000 and the adjusted basis be 351,400 for a gross profit of 33,600 or would that be wrong?

Answer rating: 100% (QA)

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