Three years ago, Derrick loaned Robin $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Robin filed for bankruptcy, and Derrick learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Derrick received $300. Assuming the loan is a nonbusiness bad debt, how should Derrick account for the loan?

Three years ago, Derrick loaned Robin $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Robin filed for bankruptcy, and Derrick learned that he would receive $0.10 on the dollar. In the current year, Year 4, the final settlement was made, and Derrick received $300. Assuming the loan is a nonbusiness bad debt, how should Derrick account for the loan?

$4,700 ordinary loss in the current year.

$4,700 short-term capital loss in the current year.

$3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.

$3,000 ordinary loss last year and $1,700 ordinary loss in the current year.