Swan Finance Company, an Accrual Method Taxpayer, Requires All of Its

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance.If a customer dies, the company receives from the insurance company the balance due on the customer's loan.Ali, a customer, died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company, Swan:

A) Must recognize $1,500 income from the life insurance proceeds.
B) Must recognize $1,300 income from the life insurance proceeds.
C) Does not recognize income because life insurance proceeds are tax-exempt.
D) Does not recognize income from the life insurance because the entire amount is a recovery of capital.
E) None of these.