Which of the Following Interest-Free Loans Is Subject to the Imputed

question 6

Multiple Choice

Which of the following interest-free loans is subject to the imputed interest rules (i.e., interest must be imputed on the loan) ?
I.Marilyn loans $24,000 to her grandmother and she uses the money to pay personal expenses and take a vacation. Her grandmother's sole income is from Social Security.
II.Pineview Corporation loans $20,000 to Catherine, an employee. Catherine uses the proceeds as a down payment on a house. Catherine's net investment income for the year is $300.
III.Scott loans $65,000 to his son. His son uses the money to open a new business. During the current year, the business shows a loss and his son has no other sources of income.
IV.Alaric Corporation loans $27,000 to its principal shareholder. The shareholder uses the funds to buy additional shares of stock in Alaric. The shareholder is deemed to receive $8,500 of dividends from Alaric during the year.
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• A)Only statement II is correct.
• B)Only statements I and III are correct.
• C)Only statements II and IV are correct.
• D)Only statements I and IV are correct.
• E)Only statements II and III are correct.

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Definitions:

Poverty Rate

The ratio of the number of people whose income falls below the poverty line; usually taken as a percentage of the population in a given country or region.

Government

The organization, or agency through which a political unit exercises authority and performs functions and which is usually classified according to the distribution of power within it.

Poverty Rate

The ratio of the number of people whose income falls below the poverty line, taking into account their standard of living or the cost of living in a country.

Standard Of Living

Standard of living refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area.