Which of the Following Taxpayers Can Claim a Business Bad

question 11

Multiple Choice

Which of the following taxpayers can claim a business bad debt deduction for the current year?
I.Sylvia lent her neighbor $4,000 to put a new roof on his home. Because they have been friends for over 15 years, Sylvia trusted her neighbor to pay her back and didn't make him sign a note with interest. The neighbor has left town and Sylvia will not get any of her money back. Her loss is properly related to this year using the cash basis of accounting.
II.Saul is an attorney using the cash basis of accounting. One of his clients is short of money to pay the utilities in the office building Saul rents from him. Saul advances the client $5,000. Saul has just learned that the client has filed bankruptcy and that Saul will not be repaid for any part of the loan.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Marginal Cost

The cost added by producing one additional unit of a good or service, crucial for decision-making in business.

Advertising Revenue

Income that a company receives from advertisers for displaying or running their advertisements.

Cournot Model

An economic model used to describe an industry structure in which firms compete on the quantity of output they will produce, which they decide on at the same time.

Cournot Equilibrium

A situation in oligopoly markets where each firm chooses the quantity to produce to maximize its profit, assuming the quantities of its rivals are fixed.