Willis is a cash basis taxpayer who is in the commercial lending business. Which of the following statements regarding loans that he made in the current year is/are correct?
I.A $10,000 one-year loan with interest at 12% made on April 1. The principal and interest are due at maturity. Willis must recognize $900 of interest income this year.
II.A $10,000 one-year loan discounted at 12% made on April 1. Willis gave the borrower $8,800. The borrower will repay the $10,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
III.A $50,000 two-year loan discounted at 10% made on July 1. Willis gave the borrower $41,300 on July 1. The borrower will repay the $50,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
IV.A $70,000 two-year loan with interest at 10% made on July 1. The interest payments on the loan are due annually on July 1 and the principal is due at maturity. Willis does not have to recognize any interest income in the current year.

Question

Willis is a cash basis taxpayer who is in the commercial lending business. Which of the following statements regarding loans that he made in the current year is/are correct?
I.A $10,000 one-year loan with interest at 12% made on April 1. The principal and interest are due at maturity. Willis must recognize $900 of interest income this year.
II.A $10,000 one-year loan discounted at 12% made on April 1. Willis gave the borrower $8,800. The borrower will repay the $10,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
III.A $50,000 two-year loan discounted at 10% made on July 1. Willis gave the borrower $41,300 on July 1. The borrower will repay the $50,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
IV.A $70,000 two-year loan with interest at 10% made on July 1. The interest payments on the loan are due annually on July 1 and the principal is due at maturity. Willis does not have to recognize any interest income in the current year.
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Quizplus · Accepted Answer

The Answer of Willis is a cash basis taxpayer who is in the commercial lending business. Which of the following statements regarding loans that he made in the current year is/are correct?
I.A $10,000 one-year loan with interest at 12% made on April 1. The principal and interest are due at maturity. Willis must recognize $900 of interest income this year.
II.A $10,000 one-year loan discounted at 12% made on April 1. Willis gave the borrower $8,800. The borrower will repay the $10,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
III.A $50,000 two-year loan discounted at 10% made on July 1. Willis gave the borrower $41,300 on July 1. The borrower will repay the $50,000 principal at maturity. Willis does not have to recognize any interest income in the current year.
IV.A $70,000 two-year loan with interest at 10% made on July 1. The interest payments on the loan are due annually on July 1 and the principal is due at maturity. Willis does not have to recognize any interest income in the current year.
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Willis Is a Cash Basis Taxpayer Who Is in the Commercial