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In late 2008, Leticia invested $100,000 in TechCo, a startup high-tech venture. Although she had great expectations of financial gain, TechCo's efforts were not well received in the market, and the value of its stock plummeted. Four years ago when TechCo declared bankruptcy, Leticia wrote off her $100,000 stock investment as worthless securities. To Leticia's surprise, this year she receives $40,000 from the bankruptcy trustee as a final settlement for her TechCo stock. Leticia now realizes that she probably should not have claimed the loss four years ago because the stock was not completely worthless. However, since the statute of limitations has passed, she does not plan to amend her tax return from four years ago. She also decides that the $40,000 is not income but is merely a recovery of some of her original investment. How do you react to Leticia's plans?

In late 2008, Leticia invested $100,000 in TechCo, a startup high-tech venture. Although she had great expectations of financial gain, TechCo's efforts were not well received in the market, and the value of its stock plummeted. Four years ago when TechCo declared bankruptcy, Leticia wrote off her $100,000 stock investment as worthless securities. To Leticia's surprise, this year she receives $40,000 from the bankruptcy trustee as a final settlement for her TechCo stock. Leticia now realizes that she probably should not have claimed the loss four years ago because the stock was not completely worthless. However, since the statute of limitations has passed, she does not plan to amend her tax return from four years ago. She also decides that the $40,000 is not income but is merely a recovery of some of her original investment. How do you react to Leticia's plans?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In late 2008, Leticia invested $100,000 in TechCo, a startup high-tech venture. Although she had great expectations of financial gain, TechCo's efforts were not well received in the market, and the value of its stock plummeted. Four years ago when TechCo declared bankruptcy, Leticia wrote off her $100,000 stock investment as worthless securities. To Leticia's surprise, this year she receives $40,000 from the bankruptcy trustee as a final settlement for her TechCo stock. Leticia now realizes that she probably should not have claimed the loss four years ago because the stock was not completely worthless. However, since the statute of limitations has passed, she does not plan to amend her tax return from four years ago. She also decides that the $40,000 is not income but is merely a recovery of some of her original investment. How do you react to Leticia's plans?
Transcribed Image Text:In late 2008, Leticia invested $100,000 in TechCo, a startup high-tech venture. Although she had great expectations of financial gain, TechCo's efforts were not well received in the market, and the value of its stock plummeted. Four years ago when TechCo declared bankruptcy, Leticia wrote off her $100,000 stock investment as worthless securities. To Leticia's surprise, this year she receives $40,000 from the bankruptcy trustee as a final settlement for her TechCo stock. Leticia now realizes that she probably should not have claimed the loss four years ago because the stock was not completely worthless. However, since the statute of limitations has passed, she does not plan to amend her tax return from four years ago. She also decides that the $40,000 is not income but is merely a recovery of some of her original investment. How do you react to Leticia's plans?
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