Martha, an Accrual- Method Taxpayer, Has an Accounting Practice

question 1448

Multiple Choice

Martha, an accrual- method taxpayer, has an accounting practice. In 2017, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2018, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result is

• A) Martha deducts a business bad debt in 2018.
• B) David deducts a nonbusiness bad debt in 2018.
• C) David deducts a business bad debt in 2018.
• D) Martha deducts a nonbusiness bad debt in 2018.

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Definitions:

Slope

In mathematics, the measure of the steepness, incline, or grade of a straight line, calculated as the ratio of vertical change to horizontal change between two points on the line.

Regression Analysis

A set of statistical processes for estimating the relationships among variables.

Least Squares Line

A line that minimizes the sum of the squares of the vertical distances of the points from the line, used in linear regression analysis.

Predicted Amount

A rephrased term for predicted values, indicating the numerical estimates generated by a predictive model.