Question

Melaney has had a bad year with her investments. She lent a friend $8,000; the friend did not repay the loan when it was due and then declared bankruptcy. The loan is totally uncollectible. Melaney also was notified by her broker that the Oak corporate bonds she owned became worthless on December 31, 2019. She had purchased the bonds for $22,000 on November 10, 2018. Melaney also had a $60,000 loss on the disposition of § 1244 corporate stock that she purchased several years ago. Melaney is single.

a. What are the nature and amount of Melaney?

Answer 1

Answer and Explanation:

There are two separate nature of Melaney's losses. The first is the short term loss and the second is the long term loss.

For the short term loss, the total amount is $8,000. This is the amount she lent her friend which was deemed collectible as her friend declared bankruptcy. Account Receivables are assets that classified as current assets ;within one year or one accounting cycle of the organization.

For the long terms loss, the total amount is $22,000 + $60,000 = $82,000. According to section 1244, up to $50,000 will be declared as an ordinary loss whereas, $10,000 will be classified as capital loss. The $22,000 amount is the purchase of the bonds which became worthless.