Suppose B borrows $100,000 from L and uses it to drill an oil well. B hits a dry hole and loses the entire $100,000 investment. Although b is solvent, L discharges $40,000 of the debt.

Journal entires to record these events might look like this:

Cash $100,000

Debt Payable $100,000

Loss on oil well $100,000

Cash $100,000

Debt Payable $40,000

______?_______ $40,000

Question 1. Under the "whole transaction" theory, what account would be credited above for the $40,000?

Question 2. Under the "Freeing-of-Assets" theory, what account would be credited above for the $40,000?

Question 3. Under the "Loan Proceeds" theory, what account would be credited above for the $40,000?