Wendell Is an Executive with CFO Tires

question 129

Essay

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

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Definitions:

Accord and Satisfaction

A legal agreement between parties to settle a dispute by both agreeing to and performing new terms different from the original contract.

Original Debt

The initial amount of money borrowed or owed, before any interest or fees are added.

Implied-in-Fact Conditions

Terms and conditions in a contract that are not expressly stated but can be inferred from the nature of the agreement and the actions of the parties involved.

Literally Occur

An event or action that takes place exactly as described or indicated without metaphor or exaggeration.