TPW, a calendar year taxpayer, sold land with a $549,000 tax basis for $845,000 in February. The purchaser paid $84,500 cash at closing and gave TPW an interest-bearing note for the $760,500 remaining price. In August, TPW received a $60,825 payment from the purchaser consisting of a $38,025 principal payment and a $22,800 interest payment. In the first year after the year of sale, TPW received payments totaling $116,650 from the purchaser. The total consisted of $76,050 principal payments and $40,600 interest payments. Required: For the first year after the year of sale, 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, determine the effect of the difference on the deferred tax asset or liability generated in the year of sale.
TPW, a calendar year taxpayer, sold land with a $549,000 tax basis for $845,000 in February. The purchaser paid $84,500 cash at closing and gave TPW an interest-bearing note for the $760,500 remaining price. In August, TPW received a $60,825 payment from the purchaser consisting of a $38,025 principal payment and a $22,800 interest payment. In the first year after the year of sale, TPW received payments totaling $116,650 from the purchaser. The total consisted of $76,050 principal payments and $40,600 interest payments. Required: For the first year after the year of sale, 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, determine the effect of the difference on the deferred tax asset or liability generated in the year of sale.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter17: Business Tax Credits And The Alternative Minimum Tax
Section: Chapter Questions
Problem 15P
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Question
TPW, a calendar year taxpayer, sold land with a $549,000 tax basis for $845,000 in February. The purchaser paid $84,500 cash at closing and gave TPW an interest-bearing note for the $760,500 remaining price. In August, TPW received a $60,825 payment from the purchaser consisting of a $38,025 principal payment and a $22,800 interest payment. In the first year after the year of sale, TPW received payments totaling $116,650 from the purchaser. The total consisted of $76,050 principal payments and $40,600 interest payments.
Required:
- For the first year after the year of sale, 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, determine the effect of the difference on the
deferred tax asset or liability generated in the year of sale.
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