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Loan forgiveness is considered to be a profit by the FASB and GAAP. The entry made by the accountant is incorrect because the principal bondholders have agreed to exchange only $10,000,000 of their bonds for preferred stock. The accountant should have credited $10,000,000 to preferred stock and $10,000,000 to realized gain. It would also be important that this situation be disclosed in the financial statements notes. External financial users would need to know this information when making financial decisions about the company. Considering the company is in financial difficulty, recording the entire $20,000,000 to bond liability would not provide accurate financials for external users