Reference no: EM132597866
Question - TPW, a calendar year taxpayer, sold land with a $550,000 tax basis for $830,000 in February. The purchaser paid $83,000 cash at closing and gave TPW an interest-bearing note for the $747,000 remaining price. In August, TPW received a $59,750 payment from the purchaser consisting of a $37,350 principal payment and a $22,400 interest payment. In the first year after the year of sale, TPW received payments totaling $114,500 form the purchaser. The total consisted of $74,700 principal payments and $39,800 interest payments.
a. For the first year of sale, compute the difference between TPW's book and tax income resulting from the installment sale method.
b. Is the difference favorable or unfavorable?
c. Using a 21% 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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