Question

For the scenario described (c. $12,500 basis, $3,200 gross income), which of the following statements is true?

A) The adjusted basis is $9,300, and Sandy recognizes $12,500 of gross income.
B) The adjusted basis is $12,500, and Sandy recognizes $3,200 of gross income.
C) The adjusted basis is $12,500, and Sandy recognizes $9,300 of gross income.
D) The adjusted basis is $3,200, and Sandy recognizes $12,500 of gross income.

Answer 1

The adjusted basis is the original cost of an asset, which remains $12,500. Sandy's gross income from the transaction is $3,200, which is the amount recognized.

Step-by-step explanation:

For the scenario described with a $12,500 basis and $3,200 gross income, the correct statement is B: The adjusted basis remains the same, and Sandy recognizes the gross income amount received. Therefore, the adjusted basis is $12,500, and Sandy recognizes $3,200 of gross income. The adjusted basis is the cost of an asset minus any depreciation or amortization, adjustments for improvements, or damages which is not applicable here. Gross income, in this context, refers to the total income received before taxes and adjustments.