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Silvia made a $70,000 interest-free loan to her son, Alex, who used...

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Silvia made a $70,000 interest-free loan to her son, Alex, who used...

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:


a.Alex's business net profit will be reduced by $2,800 (.04 × $70,000) of interest expense.

b.Silvia must recognize $2,800 (.04 × $70,000) of imputed interest income on the below-market loan.

c.Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan.

d.Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.

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Answered by varimovafinance on coursehero.com
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