Question 1 - C Cubs Corp, an accrual method, calendar year C Corporation, had a very successful year in 2016, and had the following transactions:
C Cubs has received $1,000,000 in cash for advance ticket sales for the 2017 season. In what tax year(s) should SFG report this income? Will this result in a Schedule M difference between book and tax?
Some fans were so concerned about the availability and prices of tickets that they have already paid C Cubs $150,000 in cash covering the price of tickets for the 2017, 2018 and 2019 seasons ($50,000 per year). In what tax year(s) should C Cubs report this income? Will it result in a Schedule M difference between book and tax?
Walmart has paid C Cubs $10,000,000 in cash for caps and uniform shirts that will be delivered to Walmart during 2017, 2018 and 2019. C Cubs normally keeps an inventory of these items, but the inventory levels are typically much lower than the amounts required to be delivered under the Walmart contract. For book purposes, C Cubs has recorded the $10 million as deferred income on the balance sheet, and will record the payments as income in the year the caps and uniform shirts are delivered. In what tax year(s) should C Cubs report this income? In what year should C Cubs report the cost of the merchandise delivered?
Since C Cubs is having a successful 2017, the management is looking for ways to reduce taxable income. C Cubs is flush with cash, so it has renegotiated it office lease so that in exchange for a lower rent, it will prepay its rent of $100,000 per year for certain office space for 2018 and 2019. It has also renegotiated its cleaning contract and will prepay $3,000,000 to certain cleaning contractors for normal monthly cleaning costs covering the years 2017 and 2018. Can C Cubs deduct these payments in 2017? Why or why not?
Question 2 -
On January 1, 2016, Seller Corp and Buyer Corp closed on the sale of land and a vacant warehouse for $30,000,000 with the following payment terms: Buyer Corp paid $3,000,000 at closing. Buyer Corp assumed $11,000,000 in existing mortgage debt. Buyer Corp will issue Seller Corp a note with adequate interest that requires principal payments to Seller Corp. of $4,000,000 to Seller Corp on January 1, 2017, 2018, 2019, and 2020.
Seller has owned the property for many years, and has a tax basis in the land and building of $8,000,000.
Compute the impact that this transaction will have on taxable income of Seller Corp. for the tax years 2016 -2020 assuming no special elections are made?
If the note did not provide for the payment of interest, how would that change your answer? Please provide a general answer to this part of the Problem / Question. You do not need to provide detailed computations.
If the note issued by Buyer Corp was payable on demand, how would that change your answer? Please provide a general answer to this part of the Problem / Question. You do not need to provide detailed computations.