On June 2,2009,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2010,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could expect to receive 60 cents on the dollar of the amount owed to him.In 2011,final settlement was made and Fred received $5,000.How much bad debt loss can Fred deduct and in which years?

Question

Quizplus · Accepted Answer

According to the accrual method, Fred recognized the sale of the TV in 2009, so he cannot deduct the entire $12,000 in bad debt for that year. In 2010, when Mark filed for bankruptcy, Fred could deduct the amount of the outstanding balance, which was $8,000. However, since he was only expected to receive 60 cents on the dollar, this means he could only deduct $8,000 x 0.6 = $4,800. In 2011, when final settlement was made and Fred received $5,000, there was no bad debt loss to deduct. Therefore, the correct answer is C.

On June 2,2009,Fred's TV Sales Sold Mark a Large HD