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Which of the following statements is incorrect when referring to installment sales?

a. If there is a gain on an installment sale, the gain is recognized pro rata as the seller receives the installment payments.
b. In order to qualify as an installment sale, at least one payment must be receive in a taxable year after the year of property disposition.
c. Inventory cannot be accounted for under installment sale rules.
d. If there is a loss on an installment sale, the loss is recognized pro rata as the seller receives the installment payments.

Respuesta :

The correct option is c. Inventory cannot be accounted for under instalment sale rules.

Inventory items are not eligible for instalment sale treatment under the Internal Revenue Code and must be reported as regular sales transactions. Other items, such as real estate, machinery and equipment, and intangible assets, are eligible for installment sale treatment. With an installment sale, the seller receives a portion of the proceeds in the taxable year of the sale, with the remaining proceeds received in a future taxable year. The gain or loss on the sale is recognized pro rata as the seller receives the instalment payments.

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