John owes Mark $50,000. For business reasons, Mark tells John that he will consider the debt fully

Question:

John owes Mark $50,000. For business reasons, Mark tells John that he will consider the debt fully paid if John pays him $30,000 in cash. John does so. Under IRC Section 61(a)(12), the $20,000 of debt relieved is generally taxable income to John. Answer the following questions after considering the following additional information you gather.
John's financial immediately before the relief of debt reflects the following:
Cash ...........................................$50,000
Depreciable property (FMV) ..............$235,000 (Basis = $ 100,000)
Total debt (before relief) ...................$300,000
a. How much does John have to recognize in gross income in the year of the debt relief?
b. If John has no other "tax attributes," what impact does the relief of debt have on the basis of John's depreciable assets?
c. What would be the impact if John has a net operating loss carryover from a prior year of $50,000? Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...