I respectfully disagree - I think. To clarify - my example is a pre-existing SBA loan, nothing related to the CARES ACT.
I can only DR the Loan Liability for the Principal, not the interest. The total of both should hit the "Cancellation of Debt" (Other Income) because that's the total forgiven. Finally there would be another DR to interest expense. Then the question becomes whether that interest expense is deductible since it's not "normal" interest expense that was actually paid. To prepare for the possibility that it's NOT deductible, I'll create another interest expense account and clearly identify it as "SBA Interest Paid on Behalf (Not Deductible)". Make sense?
I did read that the PPP Loan Forgiveness is accounted for similarly, except the PPP CARES ACT specifically excludes the forgiven amount from taxable income. TBD on the mechanics of that.
