TPW, a calendar year taxpayer, sold land with a $541,000 tax basis for $875,000 in February. The purchaser paid $87,500 cash at closing and gave TPW an interest-bearing note for the $787,500 remaining price. In August, TPW received a $62,975 payment from the purchaser consisting of a $39,375 principal payment and a $23,600 interest payment. In the first year after the year of sale, TPW received payments totaling $120,950 from the purchaser. The total consisted of $78,750 principal payments and $42,200 interest payments.
Required:
a. Compute gain realized on the sale.
b. Compute gain recognized in the year of sale if TPW elects not to use the installment sale method of accounting. Compute TPW's tax basis in the note at the end of the year.
c. Compute gain recognized in the year of sale if TPW uses the installment sale method of accounting. Compute TPW's tax basis in the note at the end of the year.
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TPW, a calendar year taxpayer, sold land with a $541,000 tax basis for $875,000 in February. The pur...
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