Mary incurred a 20000 nonbusiness bad debt last year

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Problem 11Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $8,000 long-term capital gain last year. Her taxable income for last year was an NOL of $15,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?True/False1. Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year,$8,000 needs to be included in gross income.2. A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to acollection agency.3. If an account receivable written off during a prior year is subsequently collected during the current year,the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.4. In determining whether a debt is a business or nonbusiness bad debt, the debtor’s use of the borrowedfunds is important.5. A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.6. The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.7. A bona fide debt cannot arise on a loan between father and son.
Chapter 7-8Chapter 8Problem 1Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows.Cost Recovery AllowedCost Recovery AllowableYear 1$16,000$ 8,000Year 29,60012,800Year 35,7607,680If Tara sells the machine after three years for $15,000, how much gain should she recognize?

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