Question

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Problem 4-33 (LO. 10) Apply the imputed interest rules in the following situations. If an amount is zero, enter "0". a. Mike loaned his sister Shonda $90,000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 4%. Shonda earned $900 of investment income for the year. The imputed amount is $ b. Nico's employer maintains an emergency loan fund for its employees. During the year, Nico's wife was very ill, and they incurred unusually large medical expenses. He borrowed $8,500 from his employer's emergency loan fund for six months. The Federal rate was 4% Nico and his wife earned no investment income for the year. The imputed amount is $ C. Jody borrowed $25,000 from her controlled corporation for six months. She used the funds to pay her daughter's college tuition. The corporation charged Jody 3% interest. The Federal rate was 4%. Jody earned $3,500 of investment income for the year. The imputed amount is $ d. Kait loaned her son, Jake, $60,000 for six months. Jake used the $60,000 to pay off college loans. The Federal rate was 4%, and Kait did not charge Jake any interest. Jake earned dividend and interest income of $2,100 for the tax year. The imputed amount is $

Answer 1

Answer -

	Situations	Imputed Amount	Explanation
a.	Mike loaned his sister Shonda $90000 to buy a new home. Mike did not charge interest on the loan. The Federal rate was 4%. Shonda earned $900 of investment income for the year.	$0	The imputed interest is the difference between the amount that would have been charged at the Federal rate and the amount actually charged on the loan.
b.	Nico's employer maintains an emergency loan fund for its employees. During the year, Nico's wife was very ill, and they incurred unusually large medical expenses. He borrowed $8500 from his employer's emergency loan fund for six months. The Federal rate was 4%. Nico and his wife had no investment income for the year.	$0	No interest is imputed on total outstanding gift loans of $10000 or less between individuals, unless the loan proceeds are used to purchase income-producing property.
c.	Jody borrowed $25000 from her controlled corporation for six months. She used the funds to pay her daughter's college tuition. The corporation charged Jody 3% interest. The Federal rate was 4%. Jody earned $3500 of investment income for the year.	$125	$25000 * (4% - 3%) * 1/2
d.	Kait loaned her son, Jake, $60000 for six months. Jake used the $60000 to pay off college loans. The Federal rate was 4%, and Kait did not charge Jake any interest. Jake earned dividend and interest income of $2100 for the tax year.	$1200	$60000 * 4% * 1/2