Frank Loaned Emma $5,000 in 2015 with the Agreement That

question 90

Essay

Frank loaned Emma $5,000 in 2015 with the agreement that the loan would be repaid in three years.In 2016,Emma filed for bankruptcy and,based on available information from the bankruptcy court,it was estimated that Frank could expect to receive $.65 on the dollar.In 2017,final settlement was made and Frank received $600.
a.Assuming the loan is a business bad debt,what is the amount of and the nature of Frank's deduction in 2016?
b.Assuming the loan is a business bad debt,what is the amount of and the nature of Frank's deduction in 2017?
c.Assuming instead that the loan is a nonbusiness bad debt,what is the amount of and the nature of Frank's deduction in 2016 and 2017?

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Definitions:

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected variable overhead based on the predetermined rate.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a specific product and included in the direct costs of production.

Variable Overhead

Costs that vary with the level of production or business activity, such as utilities or indirect materials.

Direct Material

Raw materials and components that are directly incorporated into a finished product and can be easily traced to the product.