Discussion:Accounting for a bargain sale

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Discussion Forum Index --> Accounting Questions --> Accounting for a bargain sale

Kathyt (talk|edits) said:

11 October 2006
My client (partnership) had a bargain sale to a charity, sold land similiar to the example below from Sec. 1.1011-2; but I don't know how to handle this on the books, when the contribution is more than the adjusted basis. Using the example below, as my client's situation is similar, the entry would be:

Debit cash 4,000 Debit Donation 6,000 Credit Gain on Bargain sale 2,400 Credit stock (asset) 4,000 Credit (WHAT???) 3,600

I can't seem to figure out how to get the balance sheet to balance with this, any thoughts?



Sec. 1.1011-2 Bargain sale to a charitable organization


Example 1. In 1970, A, a calendar-year individual taxpayer, sells to a church for $4,000 stock held for more than 6 months which has an adjusted basis of $4,000 and a fair market value of $10,000. A's contribution base for 1970, as defined in section 170(b)(1)(F), is $100,000, and during that year he makes no other charitable contributions. Thus, A makes a charitable contribution to the church of $6,000 ($10,000 value −$4,000 amount realized). Without regard to this section, A is allowed a deduction under section 170 of $6,000 for his charitable contribution to the church, since there is no reduction under section 170(e)(1) with respect to the long-term capital gain. Accordingly, under paragraph (b) of this section the adjusted basis for determining gain on the bargain sale is $1,600 ($4,000 adjusted basis × $4,000 amount realized / $10,000 value of property). A has recognized long-term capital gain of $2,400 ($4,000 amount realized − $1,600 adjusted basis) on the bargain sale.

Natalie (talk|edits) said:

October 13, 2006
I'm not sure about this, but it seems you would have a book-tax difference. You need to recognize the cash received and remove the land from the books. So that part of the JE is debit cash $4,000 and credit land $4,000. I think what you're trying to do is record the donation, but as you've found out, there is no other account to credit.

Kathyt (talk|edits) said:

13 October 2006
Thanks Natalie, that's what I thought but I really wanted another opinion.

Estiben (talk|edits) said:

7 December 2006
Very late response, sorry. I just noticed this post and thought it was interesting.

Kathyt, I think you were on the right track to begin with. Debit cash 4,000 Debit Donation 6,000 Credit Gain on Bargain sale '6,000' Credit stock (asset) 4,000, and end it there. You were trying to book the tax values. As Natalie said, you will need to do the book-to-tax calcs. IMHO. Don't you just love this forum?

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