Exercise 7-19 (LO. 1) During the past tax year, Jane identified $50,000 as a onb

Question

Exercise 7-19 (LO. 1) During the past tax year, Jane identified $50,000 as a onbusiness bad debt. In that tax year, Jane had $100,000 of taxable income, of which $5,000 consisted of short-term capital gains. During the current tax year, Jane collected $10,000 of the amount she had previous . identified as a bad debt. Jane treats the $50,000 nonbusiness bad debt as a short-term capital lossof which x is carried over to the current year. Jane would have to include 10,000 of the collection in gross income in the current year, resulting in a remaining carryover of Feacad

Explanation / Answer

If the account was written off during the during a previous taxable year, income created for the current year(jane's acceptance of the $10,000) is subject to the tax benefit rule.

She must include this income($10,000) in her gross income.

So, 50,000 is carried over to the current year.

And 10000 bad debt received today. So (50,000-10,000)=40,000 is carried over to nxt year

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