Final answer:
Pablo must recognize a gain of $175,000 from the sale of his property. Equity represents the current value of the property minus any outstanding loans or liabilities — in this case, Freda's equity is $250,000 and Ben's is $100,000. A firm with $1 million in revenue and $950,000 in expenses has an accounting profit of $50,000.
Step-by-step explanation:
Pablo, having purchased a new personal residence for $375,000 and sold it 12 months later for $550,000, must calculate the gain on the property sale. To determine the recognized gain, Pablo would subtract the original purchase price from the selling price.
Therefore, the gain Pablo must recognize is $550,000 - $375,000 = $175,000.
This calculation assumes that there are no adjustments for costs of sale or improvements made to the property, and it does not take into account any applicable tax laws or exclusions that could affect the taxable amount of the gain, such as the primary residence exclusion if the property had been owned and used as the principal residence for at least two of the five years before the sale.
As for Freda, with her house currently valued at $250,000 and owing zero to the bank, her equity in the house is the full current value. Likewise, Ben, whose house is now worth $160,000 and who has paid off $20,000 of his bank loan, now owns equity amounting to the current value of the house minus the remaining loan balance.
In this case, Ben's equity would be $160,000 - $60,000 (remaining loan balance) = $100,000.
Lastly, for a business that had sales revenue of $1 million and expenses totalizing $950,000 ($600,000 on labor, $150,000 on capital, and $200,000 on materials), the firm's accounting profit is calculated as the revenue minus the total costs, which would be $1 million - $950,000 = $50,000.