Shifty borrowed $10,000 from Easy. When Easy tried to collect the debt, she discovered that Shifty had moved to another state. Easy tracked Shifty down and demanded payment. Knowing it would cost Easy a substantial amount of time and money to collect the debt, Shifty offered to pay $5,000 on the condition that Easy cancel the remainder of the debt. Easy agreed to accept the $5,000 and cancel the remaining $5,000 of the debt. Which of the following statements is correct? A. Shifty has $5,000 of income when Easy cancels the debt. B. Easy has $5,000 of income upon collection of half of the debt. C. Shifty had $10,000 of income upon obtaining the loanD. Neither Shifty nor Easy has any income from his transaction.

Question

Business

Arthur Vargas

21 June, 09:21

Shifty borrowed $10,000 from Easy. When Easy tried to collect the debt, she discovered that Shifty had moved to another state. Easy tracked Shifty down and demanded payment. Knowing it would cost Easy a substantial amount of time and money to collect the debt, Shifty offered to pay $5,000 on the condition that Easy cancel the remainder of the debt. Easy agreed to accept the $5,000 and cancel the remaining $5,000 of the debt. Which of the following statements is correct? A. Shifty has $5,000 of income when Easy cancels the debt. B. Easy has $5,000 of income upon collection of half of the debt. C. Shifty had $10,000 of income upon obtaining the loanD. Neither Shifty nor Easy has any income from his transaction.

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Answers (1)

Know the Answer?

Sammy Bright · Answer 1

A) Shifty has $5,000 of income when Easy cancels the debt.

Explanation:

Since Shifty originally owed $10,000 to Easy, if the debt is cancelled by paying just $5,000, the remainder of the debt would be considered income by Shifty ( = $10,000 - $5,000). On the other hand, Easy should consider a $5,000 loss on the uncollected amount.