Denny Was Neither Bankrupt nor Insolvent but Was Short of Cash

question 54

Multiple Choice

Denny was neither bankrupt nor insolvent but was short of cash and could not make the mortgage payments on his personal residence in 2013.The bank that held the mortgage agreed to reduce the principal on the debt from $100,000 to $80,000 so that Denny's monthly mortgage payments could be reduced to a manageable amount.Denny also had a vacation home with a mortgage whose payments were beyond his means.The mortgage holder on the vacation home agreed to reduce the mortgage from $60,000 to $50,000.The value of the personal residence was $80,000 and the value of the vacation home was $45,000 at the dates of the debt reduction.

• A)Denny is not required to recognize any income as a result of the reduction in the principal of the mortgages.
• B)Denny is required to recognize $10,000 income from the reduction in the mortgage on the vacation home,but has no gross income from the reduction in the mortgage principal on his personal residence.
• C)Denny is required to recognize $5,000 income from the reduction in the mortgage on the vacation home,but nothing for the reduction in the mortgage on his personal residence.
• D)Denny is required to recognize $10,000 income from the reduction in the mortgage on the vacation home and $20,000 income for the reduction in the mortgage on his personal residence.
• E)None of the above.

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Definitions:

Pruritus

An uncomfortable, irritating sensation that leads to the desire to scratch, commonly referred to as itchiness.

Mastoiditis

An infection of the mastoid bone in the skull, typically resulting from untreated or inadequately treated middle ear infections.

Labyrinthitis

An inner ear disorder that causes inflammation of the inner ear labyrinth, leading to vertigo, hearing loss, and balance issues.

Refractive Disorders

Vision problems caused by the inability of the eye to bend light correctly, resulting in blurred vision, and including conditions such as myopia and hyperopia.