Calculating Luigi's Amount Realized

What is the amount realized by Luigi?

The amount realized by Luigi is $2,500.

Understanding Luigi's Amount Realized

Luigi sells land to Mario for a sum of money and a piece of equipment. Mario also assumes a mortgage on the property sold by Luigi. Luigi also incurs selling expenses in the process. To calculate the amount realized by Luigi, we need to consider the various elements involved in the transaction. The amount realized is the total amount he receives after deducting the necessary expenses. Firstly, Luigi receives $15,000 in cash from Mario as payment for the land. In addition to cash, Mario also gives Luigi a piece of equipment with a fair market value of $20,000. Therefore, the total value of cash and equipment received by Luigi is $15,000 + $20,000 = $35,000. However, Luigi also has selling expenses amounting to $7,500, which need to be deducted from the total amount received. So, we subtract the selling expenses from the total amount received: $35,000 - $7,500 = $27,500. Furthermore, Mario assumes a $25,000 mortgage on the property sold by Luigi. Therefore, we subtract the mortgage amount from the remaining total to find Luigi's amount realized: $27,500 - $25,000 = $2,500. In conclusion, the amount realized by Luigi after selling the land to Mario is $2,500. This amount takes into account the cash received, fair market value of the equipment, selling expenses, and the mortgage assumed by Mario.
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