Final answer:
Sean's taxable gain using the installment method for the year 2022 is $1,857, which is found by multiplying the yearly payment of $5,000 by the gross profit percentage of the sale, resulting in Answer A.
Step-by-step explanation:
The question pertains to calculating the taxable gain for Sean using the installment method for a plot of land sold to Nora, with a basis of $22,000, for a total price of $35,000.
To calculate the gain per installment, we need to figure out the percentage of the total gain as compared to the total selling price. First, we calculate the total gain by subtracting the basis from the selling price: $35,000 - $22,000 = $13,000 total gain. The gross profit percentage is then calculated by dividing the total gain by the total selling price: $13,000 ÷ $35,000 = 0.3714 or 37.14%.
Nora agreed to pay $5,000 per year. Thus, the gain recognized each year is the yearly payment multiplied by the gross profit percentage. For 2022, the taxable gain would be $5,000 x 0.3714 = $1,857. Therefore, the correct answer is A. $1,857.