1. Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year? a.$3,000 short-term capital loss b.$4,000 short-term capital loss c.$3,000 ordinary loss d.$4,000 ordinary loss e.$2,000 short-term capital loss

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1. Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?
a.$3,000 short-term capital loss
b.$4,000 short-term capital loss
c.$3,000 ordinary loss
d.$4,000 ordinary loss
e.$2,000 short-term capital loss
 
2. An asset's adjusted basis is computed as:
a.Original basis − capital improvements + accumulated depreciation.
b.Original basis + capital improvements − accumulated depreciation.
c.Original basis + capital improvements + gain or loss realized.
d.Original basis + capital improvements + accumulated depreciation.
e.None of these choices are correct.
 
3. Sol purchased land as an investment on January 12, 2018 for $85,000. On January 31, 2021 Sol sold the land for $90,000 cash. What is the nature of the gain or loss?
a.Short-term capital gain
b.Long-term capital gain
c.Short-term capital loss
d.Long-term capital loss
e.None of these choices are correct.
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