Sally is in the business of purchasing accounts receivable. Last year Sally purchased an account receivable...

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Sally is in the business of purchasing accounts receivable. Last year Sally purchased an account receivable with a face value

business accounting

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Answer 1

Answer #1

Sally's basis in the account receivable is $60,000.

Therefore, she has a bad debt deduction of $0

and income of $5000.

Explanation,

Account Receivable is classified as a DEBT INSTRUMENT, which is valued at COST or NRV (Net Realizable Value) which is lower. In the given case, Cost = $60,000 and NRV = $80,000. Lower of these two is $60,000. So the basis in the accounts receivable is $60,000.

She has bad debt deduction of $0. And she records a profit of $5,000, which is the difference between the amount she paid as cost($60,000) and what she received($65,000).

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Answer 2

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Sally is in the business of purchasing accounts receivable. Last year Sally purchased an account receivable...

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