Income Tax Fundamentals 2020
38th Edition
ISBN: 9780357391129
Author: WHITTENBURG
Publisher: Cengage
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Chapter 3, Problem 18P
a
To determine
Introduction: When goods are sold on credit and
The amount of deduction on bad debts allowed for this year to S.
b
To determine
Introduction: When goods are sold on credit and account receivable becomes uncollectible, the deduction of these bad debts is allowed to the extent that income from that sale. The specific charge off method is used and deductions are allowed only after the determination of debt as worthless.
The treatment of deduction not used this year.
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1. Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?
a.$3,000 short-term capital loss
b.$4,000 short-term capital loss
c.$3,000 ordinary loss
d.$4,000 ordinary loss
e.$2,000 short-term capital loss
2. An asset's adjusted basis is computed as:
a.Original basis − capital improvements + accumulated depreciation.
b.Original basis + capital improvements − accumulated depreciation.
c.Original basis + capital improvements + gain or loss realized.
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e.None of these choices are correct.
3. Sol purchased land as an investment on January 12, 2018 for $85,000. On January 31, 2021 Sol sold the land for $90,000 cash. What is the nature of the gain or loss?…
Can you help me explain this problem with step by step explanation, please? Thank you :)
1.Three years ago, Morris loaned Alma $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Alma filed for bankruptcy, and Morris learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Morris received $300. Assuming the loan is a nonbusiness bad debt, how should Morris account for the loan?
a. $4,700 ordinary loss in the current year.
b. $3,000 ordinary loss last year and $1,700 ordinary loss in the current year
c. $4,700 short-term capital loss in the current year.
d. $3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.
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