Chapter 7

Chapter 7 - Acct 3400 Taxation of Individuals Chapter 7...

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Acct 3400 Taxation of Individuals Chapter 7 Practice Questions Question 1: Charlie is a dentist and recently started his own practice. He is an accrual method taxpayer and performed bridgework for Darrel, one of his patient’s in 2008. The bill for the services was $750. Darrel’s insurance information turned out to be fraudulent. Over the course of the next year, six attempts were made to collect on the account at the address Darrel left, including referral of the account to a collection agency, all to no avail. In September of 2009, Charlie saw in the paper that the person he performed bridgework for was not actually named Darrel, but was Sam, an out-of-work miscreant who defrauds people in exchange for personal services. The article also noted that Sam had hundreds of creditors from whom he had received services and he would be filing for bankruptcy. Can Charlie write-off the $750 bill for Darrel’s services as bad debt? Explanation: In order to write-off a debt, the taxpayer must use the accrual method of accounting. If the taxpayer is on an accrual basis, in the context of a business bad debt, he can write off the debt under the Specific Charge-off Method when it becomes partially or completely worthless. Determining whether a debt is worthless is matter of facts and circumstances. Here, the facts would indicate that the debt is worthless. Darrel has hundreds of creditors who have also been defrauded, has filed for bankruptcy, and will likely be dealing with the criminal ramifications of his actions. Consequently, this debt is worthless and uncollectible
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This note was uploaded on 03/26/2011 for the course ACTG 3400 taught by Professor Durkee during the Spring '11 term at Weber.

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Chapter 7 - Acct 3400 Taxation of Individuals Chapter 7...

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