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  3. tpw, a calendar year taxpayer, sold land with a $5

TPW, a calendar year taxpayer, sold land with a $535,000 tax basis for $750,000 in...

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Accounting

TPW, a calendar year taxpayer, sold land with a $535,000 tax basis for $750,000 in February. The purchaser paid $75,000 cash at closing and gave TPW an interest-bearing note for the $675,000 remaining price. In August, TPW received a $55,950 payment from the purchaser consisting of a $33,750 principal payment and a $22,200 interest payment. In the first year after the year of sale, TPW received payments totaling $106,900 from the purchaser. The total consisted of $67,500 principal payments and $39,400 interest payments.

A) For the first year after the year of sale, compute the difference between TPWs book and tax income resulting from the installment sale method.

B) Is this difference favorable or unfavorable?

C) 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.

Please show all work and answer the related questions above.

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