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I have a question about how to enter a certain rare

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I have a question about how to enter a certain rare transaction into my bookkeeping, QB

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2 stockholders

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2 stockholders, 65% and 35% the 35% owner files for personal chapter 13 along with her personal debts, she had card accounts opened in her name and the company name, the courts discharged all debts. Because of the way it was structured, she or the company does not have to report the discharge as income, how do you entery it into the company books ?

Submitted: 3 months ago.Category: Finance
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Answered in 6 minutes by:
1/5/2018
Financial Professional: Carter McBride, Financial Advisor replied 3 months ago
Carter McBride
Carter McBride, Financial Advisor
Category: Finance
Satisfied Customers: 1,032
Experience: Adjunct Professor
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Hey! I'm Carter, I'm a CPA and can help with this.

So, forgiveness of debt is considered income. So your first journal entry would be to debit the liability accounts and credit a debt forgiveness income account. When doing taxes, since according to your question it is not taxable, you would do a tax journal entry and debit the debt forgiveness income account to clear that out and the credit would be to an M-1 adjustment.

Hope that helps. If you need anything else, just let me know. If not, please leave a rating. Thanks!

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