Karl Is an Employee of Cars-R-Us

question 54

Multiple Choice

Karl is an employee of Cars-R-Us. As part of their employment agreement, Cars-R-Us loans Karl $1,000,000 interest-free to assist in the purchase of a car dealership. Assume the federal rate of interest is 8%. What is the tax treatment of the loan?
I.The arrangement has no tax consequences to Karl.
II.Cars-R-Us is deemed to have paid Karl compensation of $80,000.
III.Karl is deemed to have paid Cars-R-Us $80,000 of interest.
IV.Cars-R-Us' net income tax effect is zero due to this arrangement.
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• A)Only statement I is correct.
• B)Only statements I, II, and IV are correct.
• C)Only statement III is correct.
• D)Only statements I, II, and III are correct.
• E)Only statements II, III, and IV are correct.

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Definitions:

Milgram Experiment

A psychological experiment conducted by Stanley Milgram in the 1960s to study obedience to authority, where participants were instructed to administer electric shocks to another person.

Stanford University Prison Experiment

A psychological study conducted by Philip Zimbardo in 1971 at Stanford University, where students were assigned roles of prisoners and guards to explore the effects of perceived power.

Generalization

Drawing a conclusion about a certain characteristic of a population based on a sample from it.

Logical Support

The provision of reasons or evidence to justify a claim or argument.