Jethro Company, an accrual basis taxpayer, had a $10,000 overdue account payable to a major supplier. The supplier agreed to settle the account for $9,000 cash from Jethro. Which of the following statements is true?
A. Jethro can deduct the $9,000 payment.
B. Jethro can deduct a $1,000 bad debt expense.
C. Jethro recognizes $1,000 income because of the settlement.
D. Jethro recognizes no income because of the settlement.
Answer: C
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