James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year, he collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

Question

Quizplus · Accepted Answer

James cannot take a bad debt deduction because he made a profit on the collection of the account receivable. He purchased the debt for $15,000 and collected $17,000, resulting in a $2,000 gain, not a loss.

James Is in the Business of Debt Collection