discussion-Explain how an account receivable can give rise to a bad debt deduction.
Question # 00017293
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Updated on: 06/10/2014 01:57 AM Due on: 07/12/2014
1. Explain how an account receivable can give rise to a bad debt deduction.
2. LO.1 Ron, a cash basis taxpayer, sells his business accounts receivable of $100,000 to
Mike for $70,000 (70% of the actual accounts receivable). Discuss the amount and classification of Ron’s bad debt deduction.
3. LO.1 Discuss when a bad debt deduction can be taken for a nonbusiness debt.
4. LO.1 During the past tax year, Jane identified $50,000 as a nonbusiness bad debt. In that tax year, Jane had $100,000 of taxable income, of which $5,000 consisted of shortterm capital gains. During the current tax year, Jane collected $10,000 of the amount she had previously identified as a bad debt. Discuss Jane’s tax treatment of the $10,000 received in the current tax year.
5. LO.1 Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob collected $60,000 on an account with a face value of $80,000. Discuss the amount of Bob’s bad debt deduction.
6. LO.1 Discuss the treatment of a business bad debt when the business also has longterm capital gains.
7. LO.1 Many years ago, Jack purchased 400 shares of Canary stock. During the current year, the stock became worthless. It was determined that the company “went under” because several corporate officers embezzled a large amount of company funds. Identify the relevant tax issues for Jack.
8. LO.2 Sean is in the business of buying and selling stocks and bonds. He has a bond of
Green Corporation for which he paid $200,000. The bond is currently worth only $50,000. Discuss whether Sean can take a $150,000 loss for a business bad debt or for a worthless security.
2. LO.1 Ron, a cash basis taxpayer, sells his business accounts receivable of $100,000 to
Mike for $70,000 (70% of the actual accounts receivable). Discuss the amount and classification of Ron’s bad debt deduction.
3. LO.1 Discuss when a bad debt deduction can be taken for a nonbusiness debt.
4. LO.1 During the past tax year, Jane identified $50,000 as a nonbusiness bad debt. In that tax year, Jane had $100,000 of taxable income, of which $5,000 consisted of shortterm capital gains. During the current tax year, Jane collected $10,000 of the amount she had previously identified as a bad debt. Discuss Jane’s tax treatment of the $10,000 received in the current tax year.
5. LO.1 Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob collected $60,000 on an account with a face value of $80,000. Discuss the amount of Bob’s bad debt deduction.
6. LO.1 Discuss the treatment of a business bad debt when the business also has longterm capital gains.
7. LO.1 Many years ago, Jack purchased 400 shares of Canary stock. During the current year, the stock became worthless. It was determined that the company “went under” because several corporate officers embezzled a large amount of company funds. Identify the relevant tax issues for Jack.
8. LO.2 Sean is in the business of buying and selling stocks and bonds. He has a bond of
Green Corporation for which he paid $200,000. The bond is currently worth only $50,000. Discuss whether Sean can take a $150,000 loss for a business bad debt or for a worthless security.
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Solution: discussion-Explain how an account receivable can give rise to a bad debt deduction.