Two Years Ago, Gina Loaned Tom $50,000

question 36

Multiple Choice

Two years ago, Gina loaned Tom $50,000. Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance. Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note. As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000. As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt. Last year, Gina had AGI of a negative $6,000 which included $5,000 net long-term capital gains and $4,000 of qualified dividends. Gina did not itemize her deductions. During the current year, Tom paid Gina $13,000 in final settlement of the loan. How should Gina account for the payment in the current year?

• A)File an amended tax return for last year.
• B)Report no income for the current year.
• C)Report $8,000 of income for the current year.
• D)Report $12,000 of income for the current year.
• E)None of the above.

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Definitions:

Consolidated

Pertaining to the aggregation of financial statements of a parent company with those of its subsidiaries to present as a single entity for financial reporting purposes.

Notional Profits

Hypothetical profits calculated based on assumptions or projections, not actual cash received.

NCI Ownership Interest

Non-Controlling Interest ownership interest, representing shareholders' equity in subsidiaries not wholly owned by the parent company.

Parent Ownership Interest

The portion of equity interest in a subsidiary that is directly or indirectly owned by the parent company.