Discussion Question 16-12 (LO. 4, 6)

Irene has made Sara an offer on the purchase of a capital asset. Irene will pay (1) $200,000 cash or (2) $50,000 cash and a 6% installment note for $150,000 guaranteed by City Bank of New York. If Sara sells the asset for $200,000 cash, she will invest the after-tax proceeds in certificates of deposit yielding 6% interest. Sara's cost of the asset is $25,000.

Complete the statement below regarding why Sara would prefer the installment sale.

The installment method applies to

from the sale or other disposition of the property. With an installment sale, Sara can

on the

. In addition, Sara isearning interest on the deferred taxes.