Monty loaned his friend Ned $20,000 three years ago. Ned signed a noteand made payments on the loan. Last year, when the remaining balance was$11,000, Ned filed for bankruptcy and notified Monty that he would be unable topay the balance on the loan. Monty treated the $11,000 as a nonbusiness bad debt.Last year, before considering the tax implications of the nonbusiness bad debt,Monty had capital gains of $9,000 and taxable income of $45,000. During the currentyear, Ned paid Monty $10,000 in satisfaction of the debt. Determine Monty’stax treatment for the $10,000 received in the current year.
Monty loaned his friend Ned $20,000 three years ago. Ned signed a noteand made payments on the loan. Last year, when the remaining balance was$11,000, Ned filed for bankruptcy and notified Monty that he would be unable topay the balance on the loan. Monty treated the $11,000 as a nonbusiness bad debt.Last year, before considering the tax implications of the nonbusiness bad debt,Monty had capital gains of $9,000 and taxable income of $45,000. During the currentyear, Ned paid Monty $10,000 in satisfaction of the debt. Determine Monty’stax treatment for the $10,000 received in the current year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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| Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty that he would be unable to pay the balance on the loan. Monty treated the $11,000 as a nonbusiness Last year, before considering the tax implications of the nonbusiness bad debt, Monty had year, Ned paid Monty $10,000 in satisfaction of the debt. Determine Monty’s tax treatment for the $10,000 received in the current year. |
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