Frank Loaned Emma $5,000 in 2012 with the Agreement That

question 5

Essay

Frank loaned Emma $5,000 in 2012 with the agreement that the loan would be repaid in three years.In 2013,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 2014,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 2013?
b.Assuming the loan is a business bad debt,what is the amount of and the nature of Frank's deduction in 2014?
c.Assuming instead that the loan is a nonbusiness bad debt,what is the amount of and the nature of Frank's deduction in 2013 and 2014?

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Definitions:

Net Income

This refers to the amount of money a company earns after subtracting all its expenses, taxes, and costs from its total revenue.

Ending Inventory Value

The total value of all the goods available for sale at the end of a financial period.

LIFO Periodic

An inventory accounting method where the last items purchased are the first ones used in costing inventory, applied at the end of the accounting period.

Inventory Value

The total cost or market value of all the goods and products held by a company intended for sale in the ordinary course of business.