TPW, a calendar year taxpayer, sold land with a $540,000 tax basis for $775,000 in February. The purchaser paid $80,000 cash at closing and gave TPW an interest-bearing note for the $695,000 remaining price. In August, TPW received a $57,550 payment from the purchaser consisting of a $34,750 principal payment and a $22,800 interest payment. Assume that TPW uses the installment sale method of accounting. Required: Compute the difference between TPW’s book and tax income resulting from the installment sale method. Is this difference favorable or unfavorable? Using a 21 percent tax rate, compute PTR’s deferred tax asset or liability (identify which) resulting from the book/tax difference.
TPW, a calendar year taxpayer, sold land with a $540,000 tax basis for $775,000 in February. The purchaser paid $80,000 cash at closing and gave TPW an interest-bearing note for the $695,000 remaining price. In August, TPW received a $57,550 payment from the purchaser consisting of a $34,750 principal payment and a $22,800 interest payment. Assume that TPW uses the installment sale method of accounting. Required: Compute the difference between TPW’s book and tax income resulting from the installment sale method. Is this difference favorable or unfavorable? Using a 21 percent tax rate, compute PTR’s deferred tax asset or liability (identify which) resulting from the book/tax difference.
Chapter12: Tax Credits And Payments
Section: Chapter Questions
Problem 26P
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Question
TPW, a calendar year taxpayer, sold land with a $540,000 tax basis for $775,000 in February. The purchaser paid $80,000 cash at closing and gave TPW an interest-bearing note for the $695,000 remaining price. In August, TPW received a $57,550 payment from the purchaser consisting of a $34,750 principal payment and a $22,800 interest payment. Assume that TPW uses the installment sale method of accounting.
Required:
- Compute the difference between TPW’s book and tax income resulting from the installment sale method.
- Is this difference favorable or unfavorable?
- Using a 21 percent tax rate, compute PTR’s
deferred tax asset or liability (identify which) resulting from the book/tax difference.
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