Question

Rafael sold an asset to Jamal. What is Rafael's amount realized on the sale in each of the following alternative scenarios?
A. Rafael receives $80,000 of cash and a vehicle worth $10,000. Rafael also pays $5,000 in selling expense.
B. Rafael received $80,000 of cash and was relieved of a $30,000 mortgage on the asset he sold to Jamal. Rafael also paid a commission of $5,000 on the transaction.
C. Rafael received $20,000 of cash, a parcel land worth $50,000, and marketable securities of $10,000. Rafael also paid a commission of $8,000 on the transaction.

Answer 1

Answer:

First scenario    amount realized is $85,000

Second scenario    amount realized is $105,000

Third scenario    amount realized is $72,000

Explanation:

first scenario:

Cash  proceeds  $80,000

vehicle worth       $10,000

selling expense   ($5,000)

Amount realized  $85,000

second  scenario:

Cash  proceeds        $80,000

mortgage relief        $30,000

selling commission   ($5,000)

Amount realized        $105,000

Third scenario:

Cash  proceeds        $20,000

land worth                $50,000

Marketable securities $10,000

selling commission   ($8,000)

Amount realized        $72,000

The second option is the most beneficial as the benefits of $105,000 is more than the amount realized on other options