Peter, Proprietor of Peter's Easy Loan Company, Loaned Jessie $4,000

question 41

Multiple Choice

Peter, proprietor of Peter's Easy Loan Company, loaned Jessie $4,000 on December 1, 2016. The loan is to be repaid on December 1, 2017, along with $600 interest. On July 10, 2017, Peter learns that Jessie has filed for personal bankruptcy and that non-secured creditors will receive only $0.60 on the dollar. Peter actually receives nothing until February 24, 2018. On that date, Peter receives a check for $1,000 from Jessie's bankruptcy proceedings in final settlement of the loan. How should Peter account for the loan to Jessie?

• A)$1,600 short-term capital loss in 2017; and $1,400 short-term capital loss in 2018.
• B)$3,000 ordinary loss in 2017.
• C)$2,400 ordinary loss in 2017.
• D)$1,600 ordinary loss in 2017; and $1,400 ordinary loss in 2018.
• E)$3,000 short-term capital loss in 2018.

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Definitions:

Terminal Value

The value of an investment at the end of a specified period, often used in discounted cash flow analysis to estimate future cash flows beyond a forecast period.

Market Potential

An estimate of the maximum total sales of a product or service in a particular market over a specified period under ideal conditions.

Rollback Value

A term not typically used in standard statistical or mathematical language; likely specific to certain decision analysis contexts. NO.

FDA Approval

The official authorization granted by the U.S. Food and Drug Administration for the sale and distribution of a pharmaceutical or food product as safe and effective for specified uses.