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In return for a $5,000 payment, Creditor cancels Taxpayer's debt of...

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Question

Accounting

In return for a $5,000 payment, Creditor cancels Taxpayer's debt of $8,000. The cancellation is not a gift and Taxpayer is neither insolvent nor bankrupt. Which of the following statements is correct?
A. Creditor has $8,000 taxable income.
B. Taxpayer has $3,000 of taxable income.
C. Taxpayer has $5,000 of taxable income.
D. Neither Creditor, nor Taxpayer has any taxable income from this transaction.
E. None of the above (all of the statements are false)

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