Donovan Corp. (an accrual-basis taxpayer) sells $20,000 worth of inventory to David in 2019 but...
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Donovan Corp. (an accrual-basis taxpayer) sells $20,000 worth of inventory to David in 2019 but doesnt expect David to pay until 2020. Based on prior experience, Donovan Corp. expects 20% of sales on account to never be collected. In 2020, David pays $17,500 before moving to South America. Donovan Corp. does not expect to receive the remaining $2,500. How should Donovan Corp. report this activity on their 2019 and 2020 tax returns?
Recognize $16,000 of gross income in 2019 and $4,000 of bad debt expense in 2020
Recognize $17,500 of gross income in 2020
Recognize $20,000 of gross income in 2019 and $2,500 of bad debt expense in 2020
Recognize $20,000 of gross income and $4,000 of bad debt expense in 2019
Recognize $17,500 of gross income and $2,500 of bad debt in 2020
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