Question

Several years ago John Johnson, who is in the lending business, loaned Sara $30,000 to purchase an automobile to be used for personal purposes. In August of the current year, Sara filed for bankruptcy, and John was notified that he could not expect to receive more than $4,000. As of the end of the current year, John has received $1,000 of the expected $4,000. John has contacted you about the possibility of taking a bad debt deduction for the current year. Complete the letter to John that contains your advice as to whether he can claim a bad debt deduction for the current year.

Answer 1

Answer:

the bad debt will be equal to $25,000 .

Explanation:

given,

Sara loaned amount = $30,000              

Sara filed for Bankruptcy              

John expected amount = $ 4,000                

john received amount = $ 1,000          

The bad dept recorded will be          

                                   =($30,000-($1,000+$4,000))

                                   = $25,000                                    

so, the bad debt will be equal to $25,000 .