Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

CANDY COMPANY, AN ACCRUAL BASIS TAXPAYER, WHOLESALES $15,000 WORTH OF CANDY ON ACCOUNT TO A LARGE DEPT STORE AT HALLOWEEN. IN FEB OF YEAR 2,

CANDY COMPANY, AN ACCRUAL BASIS TAXPAYER, WHOLESALES $15,000 WORTH OF CANDY ON ACCOUNT TO A LARGE DEPT STORE AT HALLOWEEN. IN FEB OF YEAR 2, THE NEWSPAPER HAS AN ARTICLE ABOUT THIS CHAIN OF STORES CLOSING PERMANENTLY. ALL CREDITORS ARE EXPECTED TO RECEIVE 10% OF THEIR UNSECURED DEBT. CANDY COMPANY WROTE OFF $13,500 OF THE DEBT IN YEAR 2. IN YEAR 3, CANDY COMPANY RECEIVES 3000 AS A FINAL SETTLEMENT. WHAT EFFECT DOES THIS HAVE ON COMPANY TAXES FOR YEAR 3.

AMEND THE YEAR 2 TAX RETURN TO SHOW 12,000 WORTH OF BAD DEBT

COMPANY MUST RECOGIZE 1500 OF INCOME FROM BAD DEBT RECOVERY

COMPANY MUST RECOGNIZE 3000 OF INCOME FROM BAD DEBT RECOVERY

THERE IS NO EFFECT ON THE TAXES SINCE THIS RECOVERY WAS FROM BANKRUPTCY.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing At The Speed Of Risk With An Agile Continuous Audit Plan

Authors: Norman Marks

1st Edition

B09PMBSWSC, 979-8787044393

More Books

Students also viewed these Accounting questions

Question

How would we like to see ourselves?

Answered: 1 week ago