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On June 30, 2020, Uncle Stans Enterprises Ltd. (USEL) sold a rental property that it had operated for many years. USEL has a December 31

On June 30, 2020, Uncle Stans Enterprises Ltd. (USEL) sold a rental property that it had operated for many years. USEL has a December 31 year-end. You have been given the following background information.

Land

Building (Class 3)

Original cost

$125,000

$175,000

UCC, December 31, 2019

135,000

Proceeds, June 30, 2020

270,000

230,000

USEL received the following consideration in payment for the assets.

Cash

$200,000

Mortgage

300,000

The principal amount of the mortgage is amortized over 25 years and has a three-year term, starting July 1, 2020.The principal payments of $12,000 are made on January 1 each year, starting on January 1, 2021. At the end of the three-year term, the balance of the mortgage will be paid in full.

Required: Calculate the minimum effect on income in year 2020 & 2021. (Hint: Capital Gain Reserve)

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