Franchisor took over our Franchise

[LarryC2]

I owned a franchise that was losing money in 2019.  The franchisor told us if we shut the doors, they may take over.  So we shut the doors for 2 days, it caused a breach of contract and they took  over the store, the lease, and all of the equipment.   The franchisor paid my bank $40K for the equipment in June.  I do not have a sale agreement with the franchisor but they have the right to operate the restaurant forever.   We have not declared bankruptcy and are still paying off the loan on the business. 

Do I account for this transaction as a sale of the restaurant in 2019, or do I just right off all of the assets in 2019 and offset it by the $40K payment?

Thanks for the help in advance.

[ThomasM125]

If the $40,000 was to compensate you for the equipment, then you would report as it sale of equipment. You will net the sale proceeds with the adjusted basis of the equipment (cost less accumulated depreciation) and the difference will be taxable gain or deductible loss.