1. Dennis Company was experiencing financial difficulties. It owed Jamai Company $54,000 plus 2 years interest totaling $5400. Jamail has offered to restructure the debt by forgiving the unpaid interest, reducing the principal to $53,500 and extending the maturity date 3 years with interest payments at 5%. Which of the following is true?

1. There is no gain to the debtor.
2. There is a gain to the debtor of $2125.
3. There is a gain to the debtor of $500.
4. There is a gain to the debtor of $5900.