In 2017 Bonnie,a Sole Proprietor,loaned Her Employee,John,$10,000 to Help Him

question 3

Multiple Choice

In 2017 Bonnie,a sole proprietor,loaned her employee,John,$10,000 to help him buy a car.In 2019,before he repaid the $10,000,Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance.How should John treat the amount forgiven?

• A)taxable income in year of loan
• B)taxable income in year of forgiveness
• C)excludible gift in year of loan
• D)excludible gift in year of forgiveness

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Definitions:

Cost Method

An accounting method used to value an investment, where the investment is recorded at its acquisition cost without reflecting changes in its market value.

Consolidated Income Statement

A financial statement that summarizes the financial performance of a company and its subsidiaries.

Gross Profit

The difference between sales revenue and the cost of goods sold, indicating the efficiency of core operations.

Cost Method

An accounting technique where investments are recorded at their original purchase cost, without adjustment for market changes unless deemed permanently impaired.