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8 October, 02:22

Mary incurred a $20,000 nonbusiness bad debt last year. She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000. During the current year, she unexpectedly collected $12,000 on the debt. How should Mary account for the collection?

a. $0 income

b. $11,000 income

c. $12,000 income

d. $8,000 income

e. None of these choices are correct.

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Answers (1)
  1. 8 October, 02:29
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    d. $8,000 income

    Explanation:

    To compute the collection value only debts incurred, debts collected and debt to be collected needs to be considered.

    collectible accounts = debt incurred - debt collected

    = $20,000 - $12,000

    = $8,000
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