In 2017, TPC Inc. sold investment land with a $388,000 book and tax basis for $523,000. The purchaser paid $60,000 in cash and gave TPC a note for the $463,000 balance of the price. In 2018, TPC received a $67,800 payment on the note ($40,000 principal + $27,800 interest). In 2018, TPC's use of the installment sale method results in a:

Question

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$40,000 principal payment × ($135,000 gain/$523,000 contract price) = $10,325 recognized gain in excess of -0- book gain. The difference is a reversal of the favorable book/tax difference in the year of sale.