Sharon made a $160,000 interest-free loan to her son, Todd, who used the money to pay for his masters at Baruch. Todd’s only sou
rces of income were $25,000 from a florist business he runs part time and $490 of interest on his checking account. The relevant Federal interest rate was 5%. Based on the above information:_____ a. Todd's business net profit will be reducod by $3,000 (0S x $60,000) of interest expense.
b. Sharon must recognize $3,000 (0.05 x $60,000) of imputed interest income on the below- market loan.
c. Todd's gross income must be increased by the $3,000 (05 × $60.000) imputed interest income on the below market loan.
d. Sharon does not recognize any imputed interest income and Todd does not recognize any imputed interest expense.
e. None of the above is correet.
b. Sharon must recognize $3,000 (0.05 x $60,000) of imputed interest income on the below- market loan.
Explanation:
When a family member makes an interest free loan, the IRS will calculate imputed interest, and that is generally considered a gift. When someone makes a gift, they are responsible for paying any applicable taxes.
In this case, Sharon will have to pay gift taxed for the imputed interest resulting form the loan.
Value is the benefit that a consumer could receive if they consume a certain type of goods or service. This value tend to be different between customers' situation.
Price is the amount of resources that the consumer need to sacrifice in order to obtain a certain type of goods or services.
The value of the products and services will determine the amount of money that the consumes willing to pay to acquire them. Most consumers are not willing to make a purchase if the price exceeds the perceived value.
A consumer surplus will occur if the amount of price that the consumers spend to purchase that goods is lower compared to the amount of price that they're willing to pay based on the value.