In the Current Year, Ho Corporation Sells Land That Has

question 33

Essay

In the current year, Ho Corporation sells land that has a $6,000 basis and a $10,000 FMV to Henry, an unrelated individual. Henry makes a $2,500 down payment this year and will pay Ho $2,500 per year for the next three years, plus interest on the unpaid balance at a rate acceptable to the IRS. Ho's realized gain is $4,000. Since Ho is not in the business of selling land, it will use the installment method of accounting. How does this transaction affect Ho's E&P in the current year and the three subsequent years?

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Definitions:

Financing Statement

A document filed by a secured creditor to give public notice of their security interest in a debtor's personal property.

Note

A brief record of facts, topics, or thoughts written down as an aid to memory.

Perfected Security Interest

A legal claim or lien that has been formally established or registered, providing a creditor priority over other claimants in case of debtor default.

Bankruptcy

A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).