Question

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.

Answer 1

d. $8,000 income

Step-by-step 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