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 $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 purchased the account receivable at a discount and collected more than the purchase price, resulting in a gain rather than a loss.

James Is in the Business of Debt Collection