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2 June, 07:23

Ashley had $10,000 in credit card debt. She negotiated a settlement with the credit card company, and the credit card company agreed to cancel $6,000 of the debt.

If Ashley has total assets of $25,000 and total liabilities of $50,000 at the time the debt was cancelled, what amount of gross income does Ashley have as a result of the credit card company cancelling $6,000 of her debt?

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  1. 2 June, 07:33
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    The amount waived off by the lender must be treated just like gross income. The total figure for the gross income will be:

    Total assets = Equity + Liability

    By putting values we have:

    $25,000 = Earnings losses (Equity) + $50,000

    Earnings Losses = $25,000 - $50,000 = - $25,000

    So the Gross losses are $25,000. Now we will reduce this losses by $6000 which is debt cancellation. The Net losses are $19,000 which are trading losses and must be offset against trading income.
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