Installment Sales First Company sold the following assets during the year. Indicate

whether First Company can use the installment method to report each transaction. If not,

how is the transaction reported? Assume First Company is an accrual basis taxpayer.

a.First Company sold stock in a publicly held company costing $35,000. First Company

received a $20,000 down payment and is to receive $20,000 per year for two years

plus interest.

b.First Company sold land costing $150,000. First Company received a $20,000 down

payment and is to receive $20,000 per year for five years plus interest.

c.First Company initiated credit sales of merchandise. The company previously sold mer-

chandise only to cash customers. Cash sales this year totaled $4,000,000. Credit sales

totaled $500,000. At year end, First Company has receivables of $100,000. The com-

pany expects to collect only $85,000 of the current receivables

Repossession.

Lina, an attorney, sold an antique rug for $45,000 that had been in her

home. The rug cost Lina $12,000 several years ago. Lina collected $15,000 down and

received a one-year interest bearing note for the balance. She is unable to collect the bal-

ance, and after incurring court costs of $500, she repossesses the rug. The rug is damaged

when she recovers it and is now worth only $30,000.

a.How much gain must Lina report in the year of the sale?

b.How much gain, if any, must Lina report in the year she repossesses the rug?

c.What is the basis of the rug after the repossession?