On January 1 of the Current Year, Beverly Borrows $100,000

question 122

Essay

On January 1 of the current year, Beverly borrows $100,000 from her employer, Happy Hills Nursing Home. Beverly uses this loan to pay off credit cards and consumer loans. Happy Hills considers Beverly to be a loyal employee, and allows her up to five years to repay the loan. Beverly is not a shareholder or officer in the Happy Hills. Happy Hills does not charge any interest on the loan. Both Happy Hills and Beverly are on a December 31 fiscal year end. What is the income tax issue for Happy Hills? You do not need to do any calculations.

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Definitions:

Investing Activities

Financial transactions related to the purchase and selling of long-term assets and other investments not considered as cash equivalents.

Long-term Assets

Assets that are expected to provide economic benefits over periods longer than one year, such as buildings, machinery, and land.

Short-term Investments

Assets that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer.

Financing Section

A segment of a business's cash flow statement that shows the net flows of cash used in funding the company, including debt, equity, and dividend payments.