Tonya Contributes $150,000 to Swan,Inc

question 104

Multiple Choice

Tonya contributes $150,000 to Swan,Inc.,for 75% of the stock.In addition,she loans Swan $450,000.The maturity date on the loan is 5 years and the interest rate is 8%,the same as the Federal rate.Which of the following statements are correct?

• A)If the loan is reclassified as equity under § 385, Swan qualifies for a deduction of $450,000 when the loan is repaid, and Tonya receives dividend income of $450,000 (assuming that Swan's earnings and profits are at least $450,000).
• B)If the loan is not reclassified as equity under § 385, Swan can deduct interest expense annually of $36,000, and Tonya includes in gross income annually interest income of $36,000.
• C)If the loan is reclassified as equity under § 385, Swan claims no interest deduction, and Tonya recognizes no income.
• D)All of the above.
• E)None of the above.

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Definitions:

Evolutionary Psychology

A theoretical approach in psychology that attempts to explain useful mental and psychological traits as the functional products of natural selection.

Adaptive Purpose

Refers to the ways in which behaviors or physical traits contribute to an organism's survival or reproductive success in its environment.

Common Behaviour

Actions or reactions that are frequently exhibited by a majority of individuals within a particular group or society.

Culture

The customs, arts, social institutions, and achievements of a particular nation, people, or other social group.