In October 2014,Jonathon Remodeling Co.,an accrual-method taxpayer,remodels and renovates an office building for Dale and bills him $30,000.Dale signs a note for the debt.Dale keeps delaying payment and files bankruptcy in 2015.Creditors are informed that no assets are available for payment. Jonathon Remodeling Co.will report
A)$0 income in both years.
B)$30,000 income in 2014 and a bad debt deduction of $30,000 in 2015.
C)$30,000 income in 2014 and a STCL of $30,000 in 2015 limited to $3,000 after netting.
D)$30,000 income in 2014 and then must amend last year's return to show $0 income when advised of the bankruptcy.

Question

Quizplus · Accepted Answer

Jonathon Remodeling Co. will report $30,000 income on their 2014 tax return as they followed the accrual method and provided the service in that year. However, as Dale filed for bankruptcy in 2015 and no assets are available for payment, the debt is considered uncollectible and Jonathon Remodeling Co. can claim a bad debt deduction of $30,000 on their 2015 tax return. Therefore, Option B is the correct answer.