If the enterprise views the transaction as a credit sale, the debt may be recorded as a note receivable
. If the enterprise views the sale transaction and the credit extension as two separate transactions, the debt may be recorded as a finance receivable.
Further, proceeds from the repayment of the Kellwood Note Receivable
were used to repay or discharge some existing Kellwood Company debt and Vince did not receive any proceeds from the sale of shares by the selling stockholders, it said.
At first glance, it would seem that a distressed loan purchased by a buyer would not fall under the IRC section 1221(a)(4) note receivable
exclusion from the definition of a capital asset, because the exclusion was intended to apply only to notes receivable acquired in payment for services rendered or inventory (see TAM 200651033).
The sale included 469,944 general partner units, representing 100% of the general partner interests, 5,696,752 common units, 11,513,625 subordinated units and the note receivable
from Quicksilver Gas Services LP, which had a balance of approximately USD58m at closing.
1221(a)(4) is to prevent a potential character mismatch between the ordinary gain or loss resulting from the sale of inventory or provision of services by the taxpayer and the resulting gain or loss from the sale of the underlying account or note receivable
received as consideration in the initial sale.
A key issue I see in Enron's 8-K and 10-Q filings is that the company issued stock in exchange for a note receivable
and reported it as an asset in debt equity.
An excellent example of an unearned revenue is interest payable on a note receivable
. Let's assume you had a customer note on which the principal and interest is payable quarterly.
It sold five real estate properties (including two condominium units at Zalanta) for net proceeds totaling $3,745,000 (including a $570,000 note receivable
) and net gain totaling $957,000; it repurchased 325,407 shares of Common Stock pursuant to the 2018 Repurchase Plan, at a total cost of approximately $5,293,000 (including commissions) and an average cost of $16.27 per share.
Because his basis in the stock was only $20,000 (i.e., 4% of the total redemption price), there is a 96% gross profit ratio (GPR) on the note receivable
As long as the estimates of the amount or timing of the expected cash flows do not change, this will result in the note receivable
being carried in the accounting records at its present value.
If Jed dies during the note's 10-year term, his heirs will inherit it as a note receivable
without a basis step-up.
The pledge is, in substance, a long-term note receivable
. While the legal aspects may be different - the pledge may not be legally enforceable - there are similarities between the pledge and a long-term note receivable
, especially a note receivable
where an implicit interest rate must be determined.