James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year,James collected $12,000 in final settlement of the account.James can take a $3,000 bad debt deduction in the current year.

Question

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James can claim a bad debt deduction for the $5,000 difference between the purchase price and the amount collected. Therefore, he can deduct $3,000 as a bad debt in the current year.

James Is in the Business of Debt Collection