| 7. | CONTRACT FOR DEED |
The Company signed a contract for deed on its former Rapid City campus located at 321 Kansas City street on March 28, 2013 for $4,000 (see Note 9 for capital lease on new campus). Of this sales price, $20 was received as a down payment. The remaining $3,980 is being financed by the Company for three years at 5% interest. Annual interest payments are due each December 31. No principal payments are required until the expiration of the contract’s three-year term; however, any such payments received may result in removal of the lien on certain buildings included in the campus property.
Because the buyer’s initial and continuing investment is not adequate in accordance with ASC 360-20-40 and the note receivable is not supported by specific evidence of collectability, the sale has not met the accounting requirements to be considered consummated. As such, the property remains on the consolidated balance sheets and continues to be depreciated, the note receivable has not been recorded, and interest income will be recognized as received. The sale will be recorded at such time the uncertainties surrounding the transaction are removed. For federal income tax purposes, the sale has been recognized. A portion of the taxable gain will be due for the year ended May 31, 2013, and the remaining portion will be payable as cash is received under the installment method.
As part of the contract for deed, the University is leasing back the Animal Health building for $7 per month under a long-term lease agreement beginning June 1, 2013. The building is not considered a significant portion of the property sold. All rent due to the buyer will offset interest income payments due under the contract for deed.