Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed belowJ Jimmy has fallen on hard times recently. Last year he borrowed $265,000 and added an additional $86,000 of his owrn funds to purchase $351,000 of undeveloped real estate. This year the value of the real estate dropped dramatically, and Jimmy's lender agreed to reduce the loan amount to $238,300 For each of the following independent situations, indicate the amount Jimmy must include in gross income: (Leave no answer blank. Enter zero if applicable.) a. The real estate is worth $178,000 and Jimmy has no other assets or liabilities. Scenario A Amount Includible

Explanation / Answer

a. The Assets of Jimmy in this situation is $178000 (Fair value of Real Asset) and Liability is $238300 (after discharge of loan reduction)

In this particular situation Jimmy is turned into insolvent situation thus Jimmy will include $0 becasue he is insolvent

b. The Assets of Jimmy in this situation is $245700 (Fair value of Real Asset) and Liability is $238300 (after discharge of loan reduction)

In this particular situation Jimmy is turned into insolvent situation thus Jimmy will include $7400 because even after loan discharge of $238300 he will stll be solvent by $7400

c. The Assets of Jimmy in this situation is $248500 (Fair value of Real Asset + Other assets) and Liability is $238300 (after discharge of loan reduction)

In this particular situation Jimmy is turned into insolvent situation thus Jimmy will include $10200 because even after loan discharge of $238300 he will stll be solvent by $10200

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