Vera has a key supplier for her business that is facing

Question 1.1. Vera has a key supplier for her business that is facing cash flow problems that would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately, the supplier filed for bankruptcy and has gone out of business without repaying Vera. What will Vera be able to recognize as a loss?

(Points : 3)

$0

$3,000

$7,000

$10,000

Question 2.2. In 2012, Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately, the market for that industry sector plunged and Paula incurred large losses. In 2013, Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is:

(Points : 3)

Grace deducts a business bad debt of $12,000 in 2013

Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2013

Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2013 and carries $9,000 over to subsequent years

Grace deducts a business bad debt of $3,000 in 2013 and carries $9,000 over to subsequent years

Question 3.3. Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n):

(Points : 3)

Itemized deduction

Ordinary loss

Long-term capital loss

Short-term capital loss

Question 4.4. In October 2013, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2014. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will report:

(Points : 3)

$0 income in both years

$30,000 income in 2013 and a bad debt deduction of $30,000 in 2014

$30,000 income in 2013 and a STCL of $30,000 in 2014 limited to $3,000 after netting

$30,000 income in 2013 and then must amend last year's return to show $0 income when advised of the bankruptcy

Question 5.5. Martha, an accrual-method taxpayer, has an accounting practice. In 2012, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2013, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year. The result is:

(Points : 3)

Martha deducts a nonbusiness bad debt in 2013

Martha deducts a business bad debt in 2013

David deducts a business bad debt in 2013

David deducts a nonbusiness bad debt in 2013