Ormont Corporation owed Landry Inc. ,$250,000.Ormont became pressed for cash and was unable to pay the Landry debt when it came due.Rather than force Ormont into bankruptcy,Landry agrees to reduce the debt to $200,000.In which of the following cases will Ormont be required to recognize income from the discharge of the Landry debt?

Total Liabilities
Total Assets Before Discharge

Question

Ormont Corporation owed Landry Inc. ,$250,000.Ormont became pressed for cash and was unable to pay the Landry debt when it came due.Rather than force Ormont into bankruptcy,Landry agrees to reduce the debt to $200,000.In which of the following cases will Ormont be required to recognize income from the discharge of the Landry debt?
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Total Liabilities
Total Assets Before Discharge

Quizplus · Accepted Answer

Ormont Corporation will not be required to recognize income from the discharge of the Landry debt as long as the total liabilities before the discharge exceed the total assets before the discharge. In this case, the total liabilities before the discharge are $2,000,000 and the total assets before the discharge are $2,020,000, which meets this condition. Therefore, Ormont Corporation will not need to recognize income from the discharge of the Landry debt.

Ormont Corporation Owed Landry Inc