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:

Confrontation

A direct engagement or encounter between parties with conflicting views or goals, often aiming to resolve disagreement.

Aggression

Behavior aimed at causing harm, pain, or distress to another, either physically or psychologically, often motivated by hostility.

Denial

A psychological defense mechanism where a person refuses to accept reality or facts, thereby blocking external events from awareness.

Rationalization

A psychological strategy where debatable actions or emotions are rationalized in an apparent logical way to evade the actual reason behind them.