FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Five years ago, alex loaned his son Liam $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of 10 years. Liam always made the interest payments until last year. During the current year, Liam notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:
a.$3,000 deduction.
b.$20,000 deduction.
c.No deduction.
d.$21,800 deduction.
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