In year 1, Aldo sold investment land with a $100,000 tax basis for $95,000. Payment consisted of $15,000 cash down and the purchaser’s note for $80,000. The note is being paid in 10 annual installments of $8,000, beginning in year 2. Required: a. Compute Aldo’s recognized loss in year 1. b. In year 4, Aldo pledged the note received from the purchaser as partial collateral for a $75,000 bank loan. The unpaid principal at date of pledge was $56,000. Determine the tax consequences of this pledge to Aldo
In year 1, Aldo sold investment land with a $100,000 tax basis for $95,000. Payment consisted of $15,000 cash down and the purchaser’s note for $80,000. The note is being paid in 10 annual installments of $8,000, beginning in year 2. Required: a. Compute Aldo’s recognized loss in year 1. b. In year 4, Aldo pledged the note received from the purchaser as partial collateral for a $75,000 bank loan. The unpaid principal at date of pledge was $56,000. Determine the tax consequences of this pledge to Aldo
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In year 1, Aldo sold investment land with a $100,000 tax basis for $95,000. Payment
consisted of $15,000 cash down and the purchaser’s note for $80,000. The note is
being paid in 10 annual installments of $8,000, beginning in year 2.
Required:
a. Compute Aldo’s recognized loss in year 1.
b. In year 4, Aldo pledged the note received from the purchaser as partial collateral
for a $75,000 bank loan. The unpaid principal at date of pledge was $56,000.
Determine the tax consequences of this pledge to Aldo
Expert Solution
Step 1
calculation of Aldo’s recognized loss in year 1 and the tax consequences of this pledge to Aldo are as follows
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