I received the following from my auditor:

Normal debt payment is:

Debit Loan Principal

Debit Interest Expense

              Credit Cash

Consider you made this entry as you normally do however your credit is held in an accrued liability account instead of cash. Since this was paid for you, you would move this accrued liability credit balance down to other income.

The interest is essentially a wash but since it was paid on your behalf and is forgiven, you would should the gross position.

Correct entry is:

Debit accrued liability

Debit interest expense

              Credit other income