Problem 16-27 Installment Method - Calculations (LO. 4)

Kay, who is not a dealer, sold an apartment house to Polly during the current year (2014). The closing statement for the sale is as follows:

Total selling price				$190,000
Add: Polly's share of property taxes (6 months) paid by Kay				3,000
Less: Kay's 8% mortgage assumed by Polly		$55,000
	Polly's refundable binder ("earnest money") paid in 2014	1,000
	Polly's 8% installment note given to Kay	99,000
	Kay's real estate commissions and attorney's fees	8,000		(163,000)
Cash paid to Kay at closing				$30,000
Cash due from Polly = $30,000 + $8,000 expenses				$38,000

During 2014, Kay collected $9,000 in principal on the installment note and $2,000 of interest. Kay's basis in the property was $110,000 [$125,000 ? $15,000 (depreciation)]. The Federal rate is 6%.

Hint: Think carefully about the manner in which the property taxes are handled before you begin your computations.

Round any division to 5 decimal places and round your final answer to the nearest dollar.

a. Compute the following: