Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $25,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $3,000 this year if the interest rate on the loan had been set at the prevailing federal interest rate. Required: a. Wally used the funds as a down payment on a speedboat and repaid the $25,000 loan (including $250 of interest) at year-end. a-1. Does this loan result in any income to either party? a-2. Indicate the amount of income to either party that results from the loan. b. Assume instead that Pay More forgave the loan and interest on December 31. What amount of gross income does Wally recognize this year?
Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $25,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $3,000 this year if the interest rate on the loan had been set at the prevailing federal interest rate. Required: a. Wally used the funds as a down payment on a speedboat and repaid the $25,000 loan (including $250 of interest) at year-end. a-1. Does this loan result in any income to either party? a-2. Indicate the amount of income to either party that results from the loan. b. Assume instead that Pay More forgave the loan and interest on December 31. What amount of gross income does Wally recognize this year?
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 37P
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Transcribed Image Text:Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him
$25,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $3,000 this year if the
interest rate on the loan had been set at the prevailing federal interest rate.
Required:
a. Wally used the funds as a down payment on a speedboat and repaid the $25,000 loan (including $250 of interest) at year-end.
a-1. Does this loan result in any income to either party?
a-2. Indicate the amount of income to either party that results from the loan.
b. Assume instead that Pay More forgave the loan and interest on December 31. What amount of gross income does Wally recognize
this year?
Complete this question by entering your answers in the tabs below.
Required A1 Required A2 Required B
བིཀ
Wally used the funds as a down payment on a speedboat and repaid the $25,000 loan (including $250 of interest) at year-
end.
Does this loan result in any income to either party?
Yes
<Required A1
Required A2 >
Show less A
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