REE 4204 Inst. Pro. 4-1-08

# REE 4204 Inst. Pro. 4-1-08 - REE 4204 INSTALLMENT PROBLEM...

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REE 4204 INSTALLMENT PROBLEM Dr. Sirmans Smith sells property to Jones in a two-year installment agreement for a sale price of \$400,000. Jones will assume an existing mortgage from Smith of which the current balance is included in the \$400,000 price. The terms of the existing mortgage are: annual payment of \$11,683 at 8% with 15 years left on the life. Jones will make a cash down payment of \$100,000 and the balance left owing (minus the cash down payment and the mortgage assumption) will be financed over a five year period at 8.50% annual payments. Smith’s original purchase price was \$330,000; he has made no capital improvements but his repairs have totaled \$18,000. Smith has selling expenses of \$10,000 and is in a 28% marginal tax bracket. The property has accumulated depreciation of \$100,000 on a straight-line basis. Calculate Smith’s ATCF in the year of sale and the ATCFs for the installment periods. Depreciation recovery is 62.5% of total gain (100,000/160,000). A. ATCF IN YEAR OF SALE

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REE 4204 Inst. Pro. 4-1-08 - REE 4204 INSTALLMENT PROBLEM...

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