Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Kathy is a college student who has big ideas but often fails to follow through on those ideas. Kathy borrowed $85,000 to pay for his

Kathy is a college student who has big ideas but often fails to follow through on those ideas. Kathy borrowed $85,000 to pay for his tuition, books, and room and board. Kathy is required to pay the money back to the bank, along with 6% interest, within 24 months of graduating. 2017 will be Jims 6th year as a full-time student at ASU and the bank is concerned about Kathys lack of motivation to graduate and find a job so he can repay the loan. The bank meets with Kathy and agrees that if she graduates in 2017, the bank will forgive $30,000 of the debt. Kathy is so grateful for the bank working with him on the loan and promptly completes her general studies degree by the end of 2017. Over the next 24 months, Kathy works hard and pays the bank $55,000. At that time, the bank confirms in writing that the $30,000 of debt is forgiven. At the time of the forgiveness, Kathy had $20,000 of assets and no debts other than the $30,000 from the bank loan.

How much income (if any) must Kathy report as a result of this transaction? Be sure to explain your answer and provide citations where relevant.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cornerstones of Managerial Accounting

Authors: Mowen, Hansen, Heitger

3rd Edition

324660138, 978-0324660135

More Books

Students also viewed these Accounting questions