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Mason cancelled a note issued by Emma Mason's niece that arose in connection with the sale of property at the time of cancellation the note had a basis to Mason of $30,000 a face amount of $55,000 and a fair market value of $42,000. Presuming that the initial sale by Mason qualify as an installment sale the cancellation results in a gain of ___.

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Answer:

The correct answer is $25,000.

Explanation:

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

Face amount = $55,000

Basis of Mason = $30,000

Fair market value = $42,000

So, we can calculate the gain by using following formula:

Gain = Face amount - Basis of Mason

By putting the following in the formula we get,

Gain = $55,000 - $30,000

= $25,000.

Hence, the cancellation of the sale results in gain of $25,000.

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