Question

Marian had long distance moving business, in 2013, Marian aquired a 40 acre tract of vacant land in an industerial park near vancouver. the land cost $12 million.

Dan the proprietor of Marian, intended to reloctae all of Marian business operations to this site in 4 to 6 years. He was planning to add furnitures storage and self storage facilities. Dan knew that he acquired the vacant land at a good price. He believed that, if plans changed, Marian would make a significant gain by reselling the land. He even noticed the industrial park's property manager that Marian might be interested in selling part of the land, if the price was right.

in 2016, Dan became sick, not able to work. shortly thereafter, Marian received an unsolicited offer of $5 million to buy 10 acre of the 40 acre site. Dan accepted the offer and sold the 10 acres. In order to close the deal, Marian took back a $3 million first mortgae on the property. the mortgage will be repaid in 4 annual installments, each worth $750,000, begining in 2017.

Marian still intended to move its current operations to the 30 acre remaining site. However, due to Dan illness, future plans to use the remainder of the site for new storage facilities were unlikely to move forward. Marian was considering whether it should sell off more acres, since it did not appear that the land was needed in its business operatons. there were 5 purchasers willing to buy 2 to 3 acres each.

Marian sought your tax advice as to what was the appropriate treatment of the 10 acres sold. provide your advice.

Answer 1

Nothing mentions in questions about when he sell the property, lets assume he sold it after 1 year of mortage, and nothing mentions about interst rate..so lets assume 5%

Date	Particulars	L/F	Dr. Amount	Cr. Amount
Jan.1, 2017	Cash a/c Dr. To Mortage Payable (Mortage Received)		3,000,000	3,000,000
Dec.31, 2017	Mortage Payable a/c Dr. To Cash (First Installment paid)		750,000	750,000
Jan.1, 2018	Cash a/c Dr. To Property (Being Property Sold)		4,250,000	4,250,000