Petal,IncIs an Accrual Basis Taxpayer

question 1

Multiple Choice

Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2016,the following occur associated with bad debts.
Credit sales
$400,000
Collections on credit sales
250,000
Amount added to the reserve
10,000
Beginning balance in the reserve
-0-
Identifiable bad debts during 2016
12,000
The amount of the deduction for bad debt expense for Petal for 2016 is:

• A)$10,000.
• B)$12,000.
• C)$22,000.
• D)$140,000.
• E)None of the above.

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Definitions:

Correction

A process of adjusting or rectifying errors in financial statements or any documents.

Intangible Assets

Assets that lack physical substance and represent legal rights or competitive advantages (e.g., trademarks, patents).

Physical Substance

A characteristic of certain assets that possess material existence and can be seen, touched, or quantified.

Ownership

The legal right or state of having control and possession over something, such as property or a company.