Question

On January 1, 2020, Marigold Corporation sold a building that cost $273,840 and that had accumulated depreciation of $109,280 on the date of sale. Marigold received as consideration a $263,840 non-interest-bearing note due on January 1, 2023. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2020, was 4%. At what amount should the gain from the sale of the building be reported?

Answer 1

The correct answer is $69,992.8.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Cost of building = $273,840

Accumulated depreciation = $109,280

Consideration received = $263,840

Rate of interest = 4%

So, Gain from sale of Building = Present value of consideration - Book value of building

Where, Book value of building = Cost of the Building - Accumulated depreciation

= $273,840 - $109,280 = $164,560

And present value of consideration = $263,840 × PVFA 4%,3 Years

So, $263,840 × 0.888996 = $234,552.80

By putting the value we get

Gain from sale of Building = $234,552.80 - $164,560 = $69,992.8