QUESTION 1 Silvia made a $70,000 interest-free loan to her son, Alex, who used the money to start a new business. Alex's only sources of income were $20,000 from the business and $390 of interest on his checking account. The relevant Federal interest rate was 4%. Based on the above information: O a. Alex's business net profit will be reduced by $2,800 (94 × $70,000) of interest expense. b. Silvia must recognize $2,800 (.04 x $70,000) of imputed interest income on the below-market loan. O C. Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan. O d. Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.
QUESTION 1 Silvia made a $70,000 interest-free loan to her son, Alex, who used the money to start a new business. Alex's only sources of income were $20,000 from the business and $390 of interest on his checking account. The relevant Federal interest rate was 4%. Based on the above information: O a. Alex's business net profit will be reduced by $2,800 (94 × $70,000) of interest expense. b. Silvia must recognize $2,800 (.04 x $70,000) of imputed interest income on the below-market loan. O C. Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan. O d. Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.
Chapter4: Gross Income: Concepts And Inclusions
Section: Chapter Questions
Problem 25CE: LO.4 Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is...
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